Triple tax advantages touted for HSAs

Employee Benefit Adviser
By Bruce Shutan
August 7, 2012

Are health savings accounts simply better than 401(k) plans?…

“HSAs are the only investment savings vehicle in America that has triple-tax advantage; namely that the money contributed goes in on a tax-free basis, the earnings on that money are not taxed and the money that comes out of the account is not taxed,” explains Kimberly Sexton, vice president of Total Benefit Communications, LLC. In contrast, she notes, 401(k) distributions are taxed and Roth IRA contributions require an upfront tax….

In the event that there is no 401(k) plan company match, Sexton says plan participants are better off putting their money into an HSA whose balance can be rolled over from one year to the next than a 401(k) because of the aforementioned tax advantages. …

HSAs can serve as a substantial rainy day fund that supplements the ability of taxpayers to deduct medical expenses that exceed 7% of their annual gross income. The magic of compound interest can certainly help account holders walk away with a substantial sum at retirement. For example, she notes that a $5,000 annual contribution earning 6% a year for 25 years would generate $290,782 in savings.

HSAs represent “a wonderful way” to pay for medical expenses considering that Medicare doesn’t kick in until age 65, according to Sexton.

So why isn’t every employee taking full advantage of an HSA whenever it’s offered?

She believes these accounts are “a harder sell for employees who are not saving for retirement in any way, shape or form because they just don’t have that kind of money,” while highly compensated individuals understand and appreciate the concept.

There are some other interesting selling points about HSAs that need to be communicated, Sexton says. One such issue involves covering an adult child who is under the age of 26 who is married and has a child.
“The husband and wife may contribute the family contribution to the HSA, including catch-ups as appropriate,” she explains. “The adult child may also contribute the family limits. And it doesn’t have to be the adult child that puts that money in; it can be the parents who put that money in on behalf of that child to be used for their spouse and child as well.”

For more information, visit www.benefits-forum.com.

Bruce Shutan, a former EBN managing editor, is a freelance writer based in Los Angeles.

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Self-Insured Numbers Higher Than Expected, and Growing

A new report reveals that the federal government was underestimating the number of employers that self-fund employee health benefits. Now, with healthcare reform, their numbers are set to grow.

Risk & Insurance Online
By JULIE LIEDMAN, a freelance writer who lives in Philadelphia

Image via WikipediaOn March 23, the one-year anniversary of the Patient Protection and Affordable Care Act (PPACA), the U.S. Department of Labor issued its first annual report on self-insured employee health benefits plans, mandated by the legislation. …

According to the DOL report, about 12,000 health plans filing a Form 5500 for 2008--the latest year for which complete data is are available--were self-insured, and 5,000 mixed self-insurance with insurance. Self-insured plans covered 22 million people, while mixed plans covered 25 million. Health benefits plans covering private-sector employees must file the form if they cover 100 or more participants or hold assets in trust. Because many self-insured health plans do not meet the filing requirements and therefore haven't filed the form, however, the total number of self-insured plans probably is underestimated. The DOL report acknowledged this,  …
"We expect a larger interest in self-insurance than ever before when additional regulations such as exchanges, 'pay-or-play' and vouchers go into effect (by 2014)," said Mike Ferguson, chief operating officer of the Self-Insurance Institute of America.
By 2014, PPACA requires that health insurance be more affordable and easier to purchase for small businesses and individuals through statewide exchanges. Employers with 50 or more full-time employees must either provide specified minimum levels of coverage to their employees or pay an excise tax. This is referred to as "pay or play."…
Smaller employers may find it financially advantageous to pay for their own firm's risk than to be subject to the new provisions.

Image via WikipediaPurchasing a plan through the exchange, for instance, where premiums will be a function of the broader risk pool and subject to risk adjustment, could be costly, Ferguson said. If enough small firms with healthier enrollees opt out of a state's small-group market in 2014, that state exchange could experience adverse selection.

"Based on anecdotal feedback we've gotten from our members," said Ferguson, "they've digested the regulations currently in place, adapted to any new requirements and life goes on."
April 12, 2011
Copyright 2011© LRP Publications

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Pitfalls await employers adopting partner benefits - Articles - Employee Benefit News

Employee Benefit News

By Kathleen Koster
June 15, 2009
Employers avowing equal benefits for same-sex couples and their families should tread carefully down the aisle in order to sidestep potential tax and legal snags, experts advise.
The concerns might be fewer for self-insured employers generally bound only by federal statutes that do not automatically apply to domestic partners, but all benefit sponsors would do well to stay apprised of related legislative developments in states where they conduct business, where their employees live, and where their insurance provider is based. …
Employers offering benefits for domestic partners must ensure taxation and imputed income issues are handled properly, that plan documents and employee communications reflect the benefit, and have administrative procedures in place for enrollment, certification and termination of coverage, advises Carol Tavella, senior manager of compensation and benefits at SMART Business Advisory & Consulting.
"We would advise any employer considering offering benefits to domestic partners to check with their insurers, including the stop-loss carriers, because technically they're creating a new eligible class of individuals that is atypical," Tavella explains. …

Tax considerations

If employers operate in states that require them to provide equal benefits, or they voluntarily choose to expand their definitions of spouse and dependent, they must address the tax implications of changing their plans — the most pressing issue when making the switch, experts say.
Because the same-sex spouse or partner of an employee is not considered a spouse for federal tax purposes under the Defense of Marriage Act, employers must withhold taxes from the employee based on the fair market value of the coverage for the domestic partner and their dependents unless the domestic partner or his or her dependents are dependents of the employee under federal tax law. …
"Unless you have a true tax dependent, the coverage of the domestic partner is going to be taxable income to the employee. Also, the domestic partner can't be covered under a flex spending account," explains [Susan Stoffer, a partner in the employee benefits and executive compensation practice of Seyfarth Shaw LLP]. …
Other offerings to consider besides health benefits that are important to domestic partners are the Family and Medical Leave Act, bereavement leave, relocation and travel assistance, education and tuition assistance, adoption assistance, credit union membership, disability and life insurance, and employee discounts.

Retirement plan considerations

For 2010, the Pension Protection Act provides nonspousal beneficiaries the same rollover rights that spousal beneficiaries have.
Until then, businesses must study applicable state laws to figure out whether the domestic partner will be recognized as the de facto beneficiary or whether the company must amend their plan documents and/or beneficiary election forms to have them recognized as such, explains Stoffer. …
Most employers offering domestic partner benefits require some sort of substantiation of the relationship, such as an affidavit signed by the employee. Affidavits generally state that the partners are not related, they are both mentally competent, that they live together and that they have not been in any other domestic partnership in at least the past six months.
Many employers also require additional substantiation of the "financial interdependence, such as a joint bank account, a joint lease, joint mortgage or joint car ownership," says Tavella. …

Preparing plan documents

In preparation for all the above modifications, employers should create enrollment forms and develop attestations forms and procedures, says Stoffer.
These documents should be rewritten to redefine the company's definition of a spouse and a dependent, as more often than not employers will include coverage for dependents of domestic partners. …
If employers decide to expand their definition of spouse to include same-sex spouses as well as domestic partners, this should be reflected in all aspects of the company, including work events.
Communicating these changes is imperative if the employer wants to be sure that affected employees are using the benefit correctly and that other workers fully appreciate the equalized workspace the employer is attempting to foster.

Wellness: Truth and Consequences

PLANSPONSOR 2009 Ultimate Buyer's Guide

We are seeing people move more toward ‘sticks' rather than ‘carrots,'" says Cathy Tripp, National Leader for Consumerism at consultant Watson Wyatt Worldwide, about how the economy has affected employers’ thinking on wellness programs.

Illustration By Fernanda Cohen

Before, an employer might have offered workers a gift card as an incentive to do a health screening. "Now, the employer may say that, if the health-risk assessment indicates you need to participate in a disease-management program and you do not, your deductible is going to be $500 higher. We even have seen some employers say employees have to do a health-risk assessment if they want coverage. In this economy, there is the latitude to push these things a little further."

As employers with wellness programs plan for 2010, “they are being much more aggressive” about their expectations, says Jay Savan, a St. Louis-based Principal at consultant Towers Perrin. …

A lot of the discussions Savan currently has with clients explore the idea of requiring or strongly encouraging participation in programs like biometric screening. “An employer might say, ‘I am going to offer you two medical plans. One is much higher in value than the other—however, to participate in that plan, we require you to complete a health-risk assessment, and if the risk assessment determines that you are eligible for case management or should be in a wellness program, you have to participate,” he says.

Or an employer may make its health savings account (HSA) contribution to an employee contingent on participation in a wellness program, says Jerry Ripperger, National Practice Leader of Consumer Health for the Principal Financial Group. …

Some employers also are looking at low-cost or no-cost wellness options, Tripp says … . "Some creative things can be done in a tight economy," she says. "It just takes energy, and you need champions within the company."…

Wellness programs' ROI is getting a closer look. Employers increasingly want not only to know what ROI their providers claim to have achieved, but also the methodology used to determine it, Tripp says. …

No industry standard currently exists for how to figure out wellness programs’ ROI, Tripp says, and methodologies differ. Some approaches measure only direct savings on medical claims, for instance, while others may take into account indirect benefits such as lower absenteeism and increased productivity.

“The biggest challenge to a wellness and prevention program is to identify the return on investment,” Savan says. “You are trying to gauge the impact of things that never happened.”

Even employers still offering “carrot” incentives are scrutinizing their effectiveness more closely. “… [An] employer may find that offering workers $100 off on their premiums is less effective than offering them $100 in cash to participate or that, instead of offering a gift card from one particular retailer, participation rises when employees get a choice of gift cards from 10 retailers.”

Companies trying to cut back on wellness­-program expenses may reduce the frequency of health-risk assessments from every year to every 18 months or two years, for instance, or they may increase employees’ contributions or deductibles slightly to help pay for a wellness program, Ripperger says.

In any case, the payoff does not come immediately. “Generally, you are looking at the second half of the second year before you start to see returns,” he says. “It takes time to change behaviors, and to see the impact of that on participants’ health status.”

Judy Ward editors@plansponsor.com