Aon Puts a Favorable Spin on Health Insurance Increases

Aon Corporation, the world's 2nd largest insurance broker released their latest survey on projected "health care" costs for 2009. An increase of only 10.6%. So what would you expect the headline to be.

HEALTH INSURANCE RATES GOING UP AGAIN.

Well not exactly. How about ....

HEALTH CARE COSTS TREND DOWN

Don't be fooled by the industry "Spin". Small business owners and mid-size companies should be prepared to experience another round of double digit rate increases again this year. Just like your experience last year, and the year before that, and the year before that.

Aon Consulting's U.S. Health & Benefits practice director, John Zern, said of the survey results: "While the medical trend rate is still more than twice the consumer price index, it is encouraging to see that health care cost rate increases are continuing to slow down. This is a step in the right direction for companies nationwide that continue to feel significant health care price pressures."

Bill Sharon, senior VP of Aon Consulting and director of the study attributes the decrease in the medical trend rate to more employers and employees taking advantage of wellness, health promotion and consumer driven programs.

"Unlike some other healthcare trend surveys, Aon Consulting's survey reports the expected future increase in employer-provided health plan claims cost before any plan changes, based on the opinions of health plan actuaries. We provide this trend data to help employers evaluate the competitiveness of health insurance premium renewals. For employers with self-funded health plans, this trend data helps them (and their actuaries) develop future claim estimates for budgeting purposes."

This is "double speak" for let us see where we can cut your benefits this year. Once again, the insurance company will pay less of the claim (if any), employees will pay more, and the employer still gets socked for an increase in premiums, only not as much as last year. Sound familiar?

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Use of Health Savings Accounts up 35 Percent; Critics See Them as Tax Shelter

The number of Americans with insurance plans tied to health savings accounts has passed the 6 million mark, according to America's Health Insurance Plans. HSAs are tax-favored, individually owned savings accounts that can be used to pay for medical expenses in conjunction with a high-deductible insurance plan. About 6.1 million Americans were covered through HSA plans in January 2008, up 35 percent over the same period a year earlier, according to AHIP, a trade association representing insurers. The plans have been in existence since January 2004.

About 30 percent of individuals covered by HSA plans worked for small businesses, 45 percent worked for large employers, and 25 percent bought insurance in the individual market. The small-group market is the fastest-growing segment for HSAs. The AHIP survey found that HSAs are helping more Americans afford health insurance. HSA plans accounted for 31 percent of new coverage in the small-group market over the past year, and 27 percent of new coverage in the individual market.

The average deductible for the best-selling HSA plans in the small-group market was $2,244 for single coverage and $4,356 for family coverage, according to AHIP.

Average annual out-of-pocket limits were $3,462 for single coverage and $6,690 for family coverage.

Premiums averaged $3,189 for single coverage and $8,125 for family coverage.

"The increasing popularity of HSAs is a result of managed care's failure," said John Goodman, president of the National Center for Policy Analysis, a Dallas-based public policy research organization. "The best way to control health care costs is to put patients in control of more of their health care dollars."

Critics of HSAs, however, pointed to another study. The Government Accountability Office found that taxpayers with HSAs in 2005 were, on average, more than twice as wealthy as other taxpayers. Contributions to HSAs were more than twice as high as withdrawals. "HSAs clearly are attractive to higher-income people who are looking for tax shelters," said Rep. Henry Waxman (D-Calif.). "But they aren't the answer for providing adequate health insurance coverage for the average American. This report provides further evidence that we need to re-examine whether this is the right way to use the government's resources to address our health care needs."

The House recently passed legislation that would require HSA trustees to substantiate that withdrawals from the accounts were used for allowable medical expenses. Republicans who opposed this provision said it was designed to undermine HSAs by adding unnecessary administrative burdens. "Democrats should stop trying to dismantle this coverage option," said Rep. Charles Boustany (R-La.). "These accounts help cover the uninsured and lower health costs with preventive care, lower-cost medicines and fewer visits to emergency rooms."

The HSA studies are available at www.ahipresearch.org and www.gao.gov.

Employment-based Health Coverage Could be Near "Tipping Point"

The end of employment-based health insurance isn’t in sight yet, but a study released Thursday raised the possibility of a “tipping point” that will cause employers to consider alternatives. The Employee Benefit Research Institute said: “If one larger employer actually did drop its health benefits, others might follow for competitive reasons.”

The report published on www. ebri.org said work-based health insurance benefits, which are held by the majority of Americans who have health insurance, are still a competitive tool to attract employees. But between 2000 and 2007, the cost of providing health benefits has doubled, and the percentage of employers that provide health benefits — especially small businesses with fewer than 200 employees — has declined slightly.

Over that time, in which the Consumer Price Index rose 17 percent, premium costs for employee-only coverage rose 86 percent, and family-coverage premium costs rose 80 percent. Copayments for nonformulary brand-name drugs jumped 124 percent. Also, the percentage of employees with employment-based insurance has fallen slightly since 2000, with 71 percent of workers now covered. Between 1994 and 2000, the percentage of workers holding health benefits through an employer had held steady at between 73 and 75 percent, the report said. “While a 4 percentage point drop in the number of workers with health benefits may be significant, it does not imply that these benefits are vanishing”.

Employers interviewed by the nonpartisan, nonprofit research institute expressed divergent opinions about employment-based health insurance, ranging from “it’s the best system available” to “inefficient” and “not intelligent.” One of the main drawbacks of an employment-based system, the report said, is the lack of insurance portability from job to job. Most workers, unless they have pre-existing conditions as specified by the Health Insurance Portability and Accountability Act, can’t stay in the same health plan if they change jobs. Furthermore, between-job coverage through COBRA, the Consolidated Omnibus Budget Reconciliation Act, is often not affordable for people in job transitions.

The institute’s research indicated that the steady erosion of employer-based health-care benefits for retirees shows that a tipping point has already been reached in regard to that coverage. And “most active workers will never be eligible for health insurance in retirement through a former employer,” the report said. While the majority of employers interviewed for the study said they want to offer health insurance as a work force benefit, they think there should be “greater shared responsibility and accountability on the part of workers and their families.” The report noted the trend toward consumer-driven health benefit plans, with high-deductible plans such as health savings accounts or health reimbursement arrangements.

The study also noted significant concern about what would happen if there was “erosion or elimination of ERISA pre-emption of state insurance regulation (which) could result in the complete elimination of employer support for a voluntary employment-based health benefits system.” ERISA is the federal Employment Retirement Income Security Act, which regulates employee benefit and pension plans. What should reverberate through national health-care discussions was this finding:

“(Employers) all agree that if one major employer were to drop health benefits, others would immediately begin to assess whether or not they should follow, on the one hand, or take advantage of others dropping the benefits to enhance talent acquisition.”

One employer interviewed said it would be “insane” to be the first large employer to drop health-care benefits. But many of those interviewed said they would consider following suit under such circumstances as the elimination of the employer tax deduction, movement to a universal health-care system or the erosion of ERISA in favor of state regulatory authority.

HSA’s – A Year End Tax Planners Dream

Tax Savings From My Health Plan You Say?

If you have just completed your 3rd quarter review and discovered that Uncle Sam will be taking a bigger bite out of your profits, the cure for your ills may be found in your health plan. HSA’s or Health Savings Accounts were established by Congress in 2003 when they passed the Medicare Prescription Drug Improvement and Modernization Act. When first implemented, it came with a myriad of complicated rules and conditions.

In 2006, President Bush signed the Health Opportunity Patient Empowerment Act which simplified the rules for employees and employers wanting to put an end to ever rising health insurance premiums. Simply put, Health Savings Accounts are like Healthcare IRA’s. Money deposited in your HSA grows tax free, and the funds placed in the account either by you, your employer, or both, uses pre-tax dollars, money that is free from payroll and income taxes.

What Dream?

Unlike an IRA or 401k account, money withdrawn from your Health Savings Account must be used for a wide range of allowable medical, dental, and health related expenses. If not, you are subject to the same 10% penalty and taxes that a 401k plan has. However, money spent for allowable expenses is never subject to taxes either going in or coming out.

The amount you are able to shelter depends on whether you are an individual or have a family of 2 or more people covered by a qualified (HDHP) High Deductible Health Plan. A single person could contribute $2,850 tax free in 2007 and $2,900 in 2008. A married couple or family can contribute $5,650 and $5,800. By taking advantage of an IRS sanctioned Health Savings Account between November 2007, and January of the next year, an individual can shelter $5,750. For married couples or families, their maximum grows to $11,450 in the next 3 months.

Pinch me!!!

Follow this example, John is single. He contributes $2,850 in a Health Savings Account prior to December 31st 2007. In January, John deposits another $2,900. In February, John goes for Lasik eye surgery to repair his vision back to 20-20. The cost is $5,000 which John has deducted from his health savings account. In a period of less than 4 months, John was able to deposit $5,750 tax free, spend most of it, without paying a dime in taxes.

Charles, age 57 and Susan 55, are married, kids are grown, and Charles is covered under a qualified High Deductible Health Plan (HDHP) offered by his employer. His employer is contributing $100 a month for single and $150 for all other employees who applied for the lower cost health plan. Charles plans to contribute the maximum allowed. Because Charles and his wife are over 55, the law allows for “catch-up” contributions of $800 each in 2007 and $900 each. Their catch–up contributions add up to an extra $3,400 or $14,850 between 2007 and 2008.

All that you need is coverage under a qualified High Deductible Health Plan, which by law can be a policy with deductibles as low as $1,100 for individuals and $2,200 for two or more people. Open your Health Savings Account at a bank or other financial institution, and its lights out for the tax man. Pleasant Dreams.

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Bruce Silver is the founder of Employers Rx LLC, an employee management consulting firm specializing in HR Outsourcing and Professional Employer Organizations.

http://employers-Rx.com

Health Savings Accounts can do double duty as backup for insurance, retirement booster

NEW YORK - New rules governing Health Savings Accounts are making them more attractive to consumers, who can use HSAs to help reduce health insurance costs now - and, potentially, in retirement. Health Savings Accounts are like Individual Retirement Accounts for health care. They were created by Congress in 2003 so that workers could cover some of their medical costs with pretax money if they have high-deductible health insurance plans.

The idea is that workers and their employers can fund the tax-free accounts, with withdrawals used for copays at doctors' offices, prescription and nonprescription medicines, and hospital services not covered by insurance. Because unused balances in the HSAs can be rolled over from year to year, some financial advisers are suggesting that the accounts can be a way for families to accumulate money to be used to cover health care costs in retirement, including Medicare deductibles and long-term care insurance.

JoAnn Mills Laing, author of "The Consumer's Guide to HSAs," said that there were 3.6 million HSA accounts at the end of 2006 with $5.1 billion in deposits, up from 1.1 million accounts with $1.2 billion in deposits at the end of 2005. She predicts further growth, in part because more companies are offering high-deductible insurance plans to their workers. That's because these plans are less costly for employers and employees than traditional health policies but still give workers coverage for medical catastrophes.

"Employees who hadn't been able to get insurance coverage are enthusiastic if they can high-deductible policies because it gives them peace of mind," said Laing, who is chief executive of Information Strategies Inc., a human resources consulting firm in Ridgefield, N.J. She pointed out that in addition to payments related to Medicare and long-term care insurance, seniors can use HSA dollars for chiropractic sessions, nursing services, dental care and glasses. To qualify, a health insurance plan must have a minimum deductible of $1,100 for an individual and $2,200 for a family. The maximum out-of-pocket expenses are set at $5,500 for an individual and $11,000 for a family.

Under the old rules, consumers could only set aside in their HSAs the equivalent of their insurance deductibles. The new rules have raised those limits so that an individual can put $2,850 into an HSA this year, while a family can put in $5,650. People 55 and older can add $800 as a "catch-up" contribution. Also new this year, according to the Internal Revenue Service, is that employees can ask their employers to make a one-time transfer of the balance in Flexible Spending Accounts or Health Reimbursement Arrangements into their HSAs. (FSAs and HRAs are specialized, employer-sponsored health plans.) And some consumers can exclude from their gross income an HSA funding from an IRA.

The rules are outlined in IRS Publication 969, "Health Savings Accounts and Other Tax-Favored Health Plans." Qualifying medical expenses can be found in Publication 502, "Medical and Dental Expenses." Hugh Bromma, chief executive of Entrust Group, a retirement plan administrator in Reno, Nev., said high-deductible policies and HSAs "should be especially attractive to younger people who are healthy and don't expect a lot of claims." He doesn't see the HSA as a substitute for retirement savings plans, such as IRAs or company-sponsored 401(k) accounts, since the retirement plans generally allow people to save more. This year, for example, a worker can set aside up to $15,500 in pretax income in a 401(k) account. The funds grow tax-deferred, and are taxable when withdrawn in retirement.

HSAs also are funded with pretax dollars and grow tax free. But withdrawals are not taxed when used for qualified health care spending. "This means the money accumulates tax free and, if you don't use it, it's terrific savings," Bromma said. "So if you can, why not have both a retirement account and an HSA?" Bromma's firm specializes in self-directed retirement accounts, which make it easier for individuals to invest their savings in nontraditional ways, such as in real estate holdings or limited partnerships. He's seeing some of this investing in HSAs, too.

Laing said that about 90 percent of people covered by high-deductible health plans choose to set up HSAs. She added savers last year pulled out just 30 cents for every $1 they deposited - resulting in a balance of 70 cents for future use. "It grows tax free, so there's no reason not to put money into an HSA," she said. "It will be another way to supplement your retirement income."

Bill Makes HSAs More Flexible

The U.S. House and Senate on Saturday passed a bill that may increase the popularity of health saving accounts. The Tax Relief and Health Care Act of 2006 (H.R. 6408) awaits President Bush's signature.

Under the legislation, employees and employers can contribute up to $2,850 for single coverage and $5,650 for families, even if the deductible is lower. Moreover, companies can contribute more money to HSAs for workers making less than $100,000 per year than for higher-income employees.

The legislation allows a one-time transfer of funds into an HSA from an individual retirement account, health reimbursement arrangement or flexible spending account. The provisions also permit workers hired during middle of the year to enroll in an HSA and make a full-year maximum contribution at that time.

Barry Barnett, a principal at PricewaterhouseCoopers, comments, "I think it's good. I think it'll drive more employers to adopt these plans. It allows people to put in more cash. As they have more cash at risk, they'll be better consumers."

John Hickman, a partner at Alston & Bird law firm, predicts, "This is probably the last, given the makeup of the [new] Congress, favorable HSA legislation we're going to see for a while. We fully expect all of the provisions to be signed [by the president]. Most of these are improvements."

Christopher McFadden, deputy business unit leader for Goldman Sachs' U.S. health care group, notes that Sen. Edward Kennedy (D-Mass.) and Rep. Pete Stark (D-Calif.) are not fans of HSAs and will head key committees on health policy. "What I hope is that this doesn't antagonize these two increasingly powerful members of Congress in a way that incites them to [reverse] the progress that has been made," he adds.

An analysis from the Center on Budget and Policy Priorities states, "HSAs provide a tax subsidy for virtually any out-of-pocket health care costs, including elective procedures not normally covered by health insurance. By enabling individuals to overfund their HSAs, the bill could encourage some people to spend a portion of their excess HSA balances on elective services they would not otherwise consume. The change would primarily benefit high-income individuals, since they are the people most likely to make such a transfer" from an IRA.

The bill garnered praise from the U.S. Chamber of Commerce, the American Benefits Council and America's Health Insurance Plans.

The bill makes "several important improvements to help the growing number of Americans enrolling in these plans and to increase the number of people who will find these plans attractive," says James Klein, American Benefits Council president.

"If you want consumers to prepare for long-term care, they need to develop a long-term strategy," says Karen Ignagni, president of America's Health Insurance Plans. "With higher contribution limits that are indexed to inflation, HSAs will offer new opportunities for consumers to plan for their long-term care expenses."

IRS Announces 2007 HSA Limits

CHH Online

The IRS issued guidance on the maximum contribution levels for health savings accounts (HSAs) and out-of-pocket spending limits for high deductible health plans (HDHPs) that must be used in conjunction with HSAs. These amounts have been indexed for cost-of-living adjustments for 2007.

Annual contribution levels

* For 2007, the maximum annual HSA contribution for an eligible individual with self-only coverage is $2850. (Note: for any individual, the maximum contribution is the lesser of the indexed amount or the deductible of the HDHP.)
* For family coverage the maximum annual HSA contribution is $5,650.
* Catch up contributions for individuals who are 55 or older is increased by statute from $700 to $800 for 2007.
* Both the HSA contribution and catch up contribution apply pro rata based on the number of the months of the year a taxpayer is an eligible individual, and, with respect to the catch up contribution, the number of months of the year that the taxpayer is age 55 and over.

Out-of-pocket spending

* The maximum annual out-of-pocket amount for HDHP self-coverage increases to $5,500 and the maximum annual out-of-pocket amount for HDHP family coverage is twice that, $11,000.

Minimum deductible amounts

* For 2007, the minimum deductible for an HDHP increases to $1,100 for self-only coverage and $2,200 for family coverage. (IRS Rev. Proc. 2006-53, IRB 2006-48, Nov. 27, 2006.)

http://hr.cch.com/news/payroll/112106a.asp