Benefit Blog

CDHealthWire Consumer Driven Market Report© newsletter (used with permission)

August 6, 2008

Americans will never save money towards retirement in an HSA until they reach age 55, according to a new report by the Employee Benefits Research Institute (EBRI) sent to news media today. Also, there is never interest paid on HSA checking accounts, no investment return on HSA investments, no statutory increase in the maximum contribution to HSAs year-to-year, and no increase in the over-55 catch-up contribution under the HSA statute.

Sound wrong? Well it must be time for another EBRI report on HSAs. This time the supposedly “independent” research institute purports to use actual numbers, but instead gets caught red-handed again playing games.

EBRI: “This research shows that while HSAs can be used to save for health care expenses in retirement, the maximum savings that can be accumulated in an HSA will be far from sufficient to fully cover the savings needed in retirement for insurance premiums and out-of-pocket expenses.” That is of course unless you start saving before age 55 – like HSA owners actually do.

Here is a list of the main screw-ups we found:

Note: EBRI prepares a lengthy analysis showing why HSAs will never be a good way of saving for retiree health. The goal is described as a bare minimum of $132,00 for males and $181,000 for females. Only problem: the supposed shortfall is caused by an assumption that nobody saves money in an HSA until age 55 and all other ages are irrelevant. That’s a funny assumption since the average age of new HSA account holders is 42 and has been falling for five years. No retirement plan works at age 55 including IRAs or 401ks.

We were forced to do our own spreadsheet to see how big a mess-up this is. We immediately started coming across more and more errors. If you do a totally accurate assumption on 55-year-olds, for example, HSAs hit $152,947 by age 65 – 98% of EBRI’s own minimum goal for an average of men and women with median drug expenses.

The most shocking cover-up by EBRI: if you run accurate numbers on 45-year-olds, which is obviously the correct age to use, HSA asset accumulation reaches $340,884 at age 65 – more than double the EBRI stated minimum goal. In fact, that’s way over the $312,500 maximum needed under the EBRI estimate for a couple.

note: EBRI fails to use publicly-available updates to the statutory and regulatory formulas for HSA contributions. The big one is an average 2.93% cost-of-living increase in HSA maximum contributions over the past five years – EBRI uses zero. There is also a little thing called the catch-up contribution for 55-year-olds that rises by $100 per year and just hit $1,000 for 2009. The EBRI report falsely states the age is 65, then uses the 2008 number for 55-year-olds without any increase, shaving thousands off the accumulation of HSA retirement funds.

note: Money earns interest. Most retirement financial planners ask about this first. Not EBRI. It ignores an average 3% interest paid on HSA accounts over the past five years, and an average 6% on invested funds in HSAs (they are less than 5% of total assets). We used a conservative 3.3% overall asset yield over time and it makes a huge difference in how much Americans can save in an HSA.

Questions? Send emails to the Publisher at healthmarkets@starpower.net

CDHealthWire Consumer Driven Market Report©  (used with permission)

August 8, 2008

The Employee Benefits Research Institute disclosed a list of assumptions and new detail about the numbers used to calculate potential HSA savings over time after CDMR submitted a list of follow-up questions. The disclosure appears to modify the estimate of the amount of HSA savings and change the original EBRI spreadsheet. CDMR will publish a full update on the study in the next issue. In the meantime readers may address technical questions to:

fronstin@ebri.com

Here is our list of questions and EBRI’s response:

Question: What is the source of your 7.32% “interest on the account” since HSAs have both checking and investments

7.32% is footnoted in Figure 1 of the report and comes from the EBRI May 2008 IB (http://www.ebri.org/pdf/briefspdf/EBRI_IB_05-20081.pdf, which you previously wrote about on June 3).  It comes from a Monte Carlo Simulation model, as described on page 6 of the May report and discussed further in footnote 4 of the May report.  It is independent of HSA interest rates and ties in with more consistent with overall rates of return for the population as used to generate the savings needed to cover premiums and out of pocket expenses from the May report.

question: Explain the footnote saying “Individual rolls over various percentages of end-of-year account balances”

We show how much money would be saved in an HSA when some money does not roll over each year.  In Figure 1, we have illustrations when 50%, 75%, 90%, and 100% roll over each year. So if all money rolls over each year a couple will have $118,000 after 10 years, but if only 90% rolls over (10% distribution each year) only $76,000 will be in the account after 10 years. 

question: What is the dollar increase per year in “maximum” catch-up contributions under your assumptions

Maximum catch up contributions are set at $900 in 2008, and then $1,000 in each year thereafter.  By law, catch-up contributions are not indexed to inflation the same way contribution limits are.  It will take another act of Congress to allow catch up contribution greater than $1,000.  I do however allow $1,800 in catch up contributions for couples in 2008 and $2,000 thereafter.  It means that the couple would each have to have their own HSA, which is allowed even under a family plan.  Then the sum of the HSAs would be the family HSA amount (assuming all else equal).

question: What is the difference between (a) the ratio of savings accumulation to spending in the age 55 thru 65 cohort, and (b) the same ratio in the age 45 thru 65 cohort (with lower per capita spending and longer accumulation)

I don’t have the data for age 45 as we have never estimated the savings needed for health care in retirement for this group.  The gap between savings needed and HSA balances will be higher for this group because health premiums will grow at the health care inflation rate, while contribution limits to the HSA will grow with overall inflation.

Questions? Send emails to the Publisher at healthmarkets@starpower.net

By Ric Joyner

I have received several calls in the last month from clients and past clients. They all had the same story. The DOL was in auditing, and was looking for several items such as plan documents, corporate resolutions, amendments, SPDs, communication pieces for employees, and many other documents. We were able to provide these, but now I am hearing stories from agents regarding other DOL audits that are not going as well because vendors are not cooperating with documentation.

Here are examples of several emails received from concerned brokers:

“I too went through an audit with a client a few months ago but although grueling, I found the DOL to be very helpful in the matter. I did find some of the areas of concern you had with the providers of services not maintaining or sending copies of the proper notices. But after time and much effort we were able to get some of these issues resolved favorably.

Just as a heads up, I was advised by DOL that they are and plan on conducting an extensive amount of audits of all size groups. You are definitely not alone…

Agent in California”

—————————————————————————————————————–

Subject: Dept. of Labor Audit

Hi all!

I’m not sure how many of you have actually had one of your clients subjected to a “Field Audit” by the DOL, but I assure you, they DO happen, and they are grueling! One of my accounts with 20-25 employees received notice about 4 weeks ago and completed the audit this morning.

Interesting findings were as follows:

(Large Insurer) did not seem to be able to produce the documents they asked for. They were very attentive and responsive, I’m just not sure they send out all of the notifications the DOL seems to think they should be.

My office started contacting (Large Payroll and COBRA provider) immediately after our client was notified of the audit. XXXXXXX as of today DID NOT provide copies of letters sent to employees. Including initial notification and qualifying event notices. They did send a spreadsheet listing who they had sent notices to, but clearly, the documentation I always expected did not seem readily available! I was shocked! So was my client. They had hired XXXXXXX on my advice when they became obligated to comply with COBRA, when I moved the group to (Large Insurer), they started picking up the tab for the service.

I am posting this information for 2 reasons:

First, because I was curious if others had experienced similar problems when clients were subjected to these audits.

Second, to warn my fellow B2B members/participants this CAN happen to your clients. If it happens to be one that has not embraced the responsibility of administering COBRA, you as the agent will have fingers pointing at you!

Agent in LA

My advice is to take the DOL seriously and “get your ducks in a row”.

Tuesday, August 19, 2008 12:00 PM - 1:00 PM CDT

Webinar Registration

Thinking about an HSA for your organization? Wondering where to go for banking, billing, investments, and debit cards for your HSA? Want to offer an HSA, FSA, and HRA, but haven’t found a source? Look no further! eflexgroup, in our partnership with Lighthouse1 (our software provider) and HealthCare Bank, have created a seamless solution to match any of your needs.

We have created a new seminar how simple HSAs can truly be with our integrated and seamless solution.

To register follow the link:

https://www1.gotomeeting.com/register/227219811

Our solution-based seminar will include:

How does the program work?
What are the costs?
How do you implement, enroll, and set up banking?
How do the investments work with Schwab?
How to get started?

Your speakers will be Nancy Dantzman and Tom Jacobs, JD

Feel free to pass this on to your staff, clients, and colleagues.

IRS Increases Mileage Rates through Dec. 31, 2008

IR-2008-82, June 23, 2008

WASHINGTON — The Internal Revenue Service today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Rev. Proc. 2007-70.

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

“Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile,” said IRS Commissioner Doug Shulman. “We want the reimbursement rate to be fair to taxpayers.”

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

By Ric Joyner, CEBS, GBA, CFCI

LiveJournal Tags: COBRA,Health Insurance,Brokers,Insurance

You won’t want to miss this seminar. We have developed a seminar that will focus on the Landmines of COBRA and the pitfalls that brokers, employers, and employees can experience if not aware.

Stay out of Court!

This seminar is part of eflex’s continuing education seminar for clients.

The time allotted for this seminar is 1.5 hours.

Who should attend:

Employers, Brokers, and Broker Clients.

What you will learn. The Agenda is as follows:

COBRA and Employer responsibilities

• COBRA and Employee Responsibilities
• COBRA and Broker Responsibilities
• Checklist for each group to cover with their constituency
• Case Law and How the Courts view COBRA
• Should you outsource? Pros and Cons

Bring your clients and your staff.

Seminar information:

Registration Link: https://www1.gotomeeting.com/register/548457286

By Ric Joyner

Kevin Knopf of the Treasury, speaking last Friday at the NAPBA.org Owners Conference, indicated to attendees that the Treasury has recently said publicly that the implementation of the New Cafeteria Final Regulations will be 2010. “The new regulations will likely appear toward the end of 2008 versus mid-summer which won’t give much time for implementation and document changes until 2010″.

NAPBA is in full review of other comments made on some of the issues related to non-discrimination testing, penalties for non compliance, and HSAs. We are  hoping to have a pod cast on www.benefitblog.com within 2 weeks.

Used with permission 6-3-08 (please do not forward outside of your organization)

CDHealthWire June 3, 2008

[Consumer Driven Market Report] A new EBRI analysis of the required savings to meet retiree health costs shows that many older workers can save enough in an HSA to cover post-65 health costs even if starting as late as age 55. The median savings needed is $102,000 for a man and $137,00 for a woman, assuming no employer retiree coverage. If the employer provides some coverage it’s $64,000 and $86,000.

The maximum HSA contribution for over-55 individuals with family coverage this year is $6,700. If that contribution is made every year with 5% in account income the HSA reaches over $84,000 by age 65, a good portion of retiree health needs based on the new estimate.

All available studies including the GAO report to Congress show that HSA contributions are exceeding HSA distributions by a large amount, even in early populations. This paves the way for the argument that HSAs are a valid retiree health model for a portion of U.S. workers.

The new numbers are important though because many benefits consultants, banks, and carriers are seeing fast-rising demand from employers for some form of defined contribution combined with HSAs for pre-retirees to try and capitalize future retiree health spending.

For example, an employer wanting to provide retiree health benefits but not a full defined benefit plan can simple make maximum HSA contributions to 55-year-old workers for 10 years and reach the savings needed to cover most out-of-pocket costs for the employee during retirement. If HSAs are started all workers by an employer with the average workforce age of 42, all out-of-pocket costs can be covered.

This model is already catching on with employers using VEBAs, a form of pre-retiree funding based on HRAs that roll over and accumulate. So far HSAs have not been as broadly discussed as an employer solution, but with HSAs now reaching 10 million some employer RFPs for next year are citing HSAs and VEBAs as something insurers must offer.

Law Professor Larry Grudzien outlined the key elements of WELLNESS programs for brokers and employers.

The seminar is available at this link for your review: Wellness Webinar

The DOL Checklist is available at this link: DOL ERISA Compliance, DOL HIPAA Compliance

Used with permission 5-21-08

Today, President Bush signed the Genetic Information Nondiscrimination Act of 2008 (“GINA”), which Congress passed in late April. GINA sets forth new nondiscrimination prohibitions that apply to group health plans and employers.  GINA applies not only to genetic testing, but also to genetic information and will have broad reaching implications for employers and employer-sponsored wellness programs. Attached are two Legal Alerts - one addressing the health plan implications of GINA and the other addressing the employment law implications of GINA.  If you have any further questions, please feel free to contact me.

Mark L. Stember
Kilpatrick Stockton LLP
607 - 14th Street, NW, Suite 900
Washington, DC 20005-2018
202.508.5802 (P)
202.585.0018 (F)
mstember@kilpatrickstockton.com

LABOR & EMPLOYMENT
MAY 21, 2008
New Federal Law Prohibits Employment Discrimination Based on Genetic Information Genetic testing can identify predisposition to a wide range of diseases and conditions, allowing individuals to take action with respect to potential medical conditions early, when preventive measures and treatment are most likely to succeed. However, many individuals have shied away from utilizing genetic tests for fear that they could be subject to discrimination on the basis of the results. In a move aimed at reducing such fears, Congress recently enacted the Genetic Information Nondiscrimination Act by overwhelming majorities in both the House and the Senate.

President Bush signed the Act on May 21, 2008, and the new law will go into effect 18 months after that date.

GINA EB ALERT

GINA Employment Alert

Provisions of the Act Related to Employment Discrimination
The purpose of the Genetic Information Nondiscrimination Act (the “Act”) is to prevent discrimination in health insurance and employment based on genetic information.

With respect to employment, Title II of the Act prohibits covered employers from discriminating against applicants and employees on the basis of genetic information in much the same way that Title VII of the Civil Rights Act of 1964 prohibits discrimination on account of race, sex, or other protected factors. The Act applies to persons and entities that qualify as employers under Title VII (basically, those with fifteen or more employees), as well as employment agencies and labor organizations. Covered employers may not discharge, fail or refuse to hire, or otherwise discriminate against an individual with respect to compensation, terms, conditions, or privileges of employment because of genetic information with respect to the individual. The Act further prohibits the limitation, segregation, or classification of employees in such a way “that would deprive or tend to deprive any employee of employment opportunities or otherwise adversely affect the status of the employee as an employee, because of genetic information
with respect to the employee.”
http://www.kilpatrickstockton.com/publications/legal-alert.aspx?ID=222

(1 of 3) [5/21/2008 5:02:24 PM]
Kilpatrick Stockton LLP: New Federal Law Prohibits Employment Discrimination Based on Genetic Information

The Act also prohibits the acquisition of genetic information about an employee or his or her family member by request, requirement, or purchase. However, an employer will not be penalized for genetic information learned :

(1) by reading a magazine or publication,

(2) through health or genetic services offered as part of a wellness program, provided the employee has given prior written authorization and any genetic information disclosed to the employer in connection with the program is in the aggregate so that it does not identify the individual,

(3) inadvertently from medical history information, or (4) in response to a request for information to comply with the certification requirements of the Family and Medical Leave Act. Employers may lawfully obtain genetic information to monitor the genetic effects of exposure to hazardous workplace substances, provided they comply with certain disclosure, consent, and monitoring standards. Finally, the Act mandates the confidentiality of genetic information, permitting disclosure only in the following circumstances:

(1) in response to a court order,

(2) as part of a governmental investigation,

(3) to the employee or a labor organization at the written request of the employee, or

(4) in other very limited circumstances specified in the Act.

An employee or applicant who believes that an employer has violated the employment discrimination provisions of the Act has essentially the same remedies as individuals alleging a violation of Title VII, including a right to recover compensatory and punitive damages subject to certain statutory caps. However, the Act specifically excludes a cause of action for disparate impact discrimination – that is, a claim that a facially neutral policy or practice disproportionately affects individuals in the protected class. The Act also addresses discrimination in health insurance based on genetic information.

Please refer to the Kilpatrick Stockton Employee Benefits Legal Alert entitled “Landmark Genetic Nondiscrimination Legislation” for an in-depth analysis of Title I of the Act, which applies to group health plans and health insurers offering health coverage. Other Employment-Related Provisions In addition to addressing the use of genetic information by employers, labor organizations, employment agencies, and insurers, the Act contains a totally unrelated provision amending
the child labor provisions of the Fair Labor Standards Act (“FLSA”). This provision increases the maximum employer penalties for violations involving the FLSA’s oppressive child labor provisions or its child labor safety requirements. The new maximum penalty is $11,000 for each employee who was the subject of such violation. Additionally, the provision adds a $50,000 penalty for each violation that causes the death or serious injury of any employee under the age of eighteen. The $50,000 penalty may be doubled for repeated or willful violations.
Practical Implications Although many states have already enacted similar legislation, the Genetic Information http://www.kilpatrickstockton.com/publications/legal-alert.aspx?ID=222

(2 of 3) [5/21/2008 5:02:24 PM]
Kilpatrick Stockton LLP: New Federal Law Prohibits Employment Discrimination Based on Genetic Information

Nondiscrimination Act creates a federal baseline for protection against employment discrimination based on genetic information. Employers should update their policies prohibiting employment discrimination and addressing the confidentiality of employee information to reflect the new federal law. Employers that sponsor employee wellness programs should also review those programs to ensure that they comply with the confidentiality provisions of the Act insofar as genetic information is concerned.