a cpas guide- white paper

White Paper & CPA Guide Consulting & Benefit Administration

Edward A. Lyon, JD, National Tax Attorney & Consultant Christy A. Quigley, President, ClaimLinx Thomas J. Quigley, National Business Consultant

Rave Reviews for ClaimLinx: “ClaimLinx has saved our company a lot of money” - Kelly DeGregorio - Kraft Electric “Excellent Service and Knowledge” - Don Cain - Biehn Company “We are a medium sized company dealing with the ever increasing affects brought on by a health carrier monopoly In order to contain our costs we searched and found a workable concept and solution to reduce our health care expenses. ClaimLinx introduced us to an innovative cost savings concept that we implemented in April 2006, with the assistance of their professional staff members. This method has reduced our health care costs, provided us with statistical reports to negotiate any future health carrier rate increases, while helping our employees understand the importance of being actively involved as consumers and making better health care decisions. We look forward to continuing our relationship with ClaimLinx. “ - Sharon Wray - Harrison Concrete “Our company has saved tens of thousands of dollars, ClaimLinx has made it easy and hassle free. ClaimLinx can provide the benefits that WE want, not what the insurance company suggests. We would highly recommend any company that wants to be smarter about buying health insurance talk with ClaimLinx.” - John Moore - Ohio Metal Products

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Who is ClaimLinx? ClaimLinx specializes in consulting and the benefit administration of self-funded Medical Expense Reimbursement Plans (MERP). Our services include determining savings projections, designing the benefit plan, processing claims, educating members and paying providers. ClaimLinx was formed in 2004 by Christy A. Quigley. We are a Cincinnati, Ohio-based company operating as a third party administrator in the State of Ohio. We coordinate the processing of claims for over 6,000 members nationwide. Our team is committed to providing clients with unprecedented service given by no other in the industry. Our employees strictly adhere to all HIPAA regulations and guidelines as enforced by the federal government. We strongly believe in the privacy of our clients, his/her employees and any individuals with whom we contract for services. Contact Erika DeStefano, National Sales Director at [email protected] or (513) 677-6262 or (800) 858-1772 to setup a consultation. Think it costs too much to stay healthy? If you think it costs too much to stay healthy, we’ve got bad news and we’ve got good news. The bad news, of course, is that you’re right. Health care swallows nearly 16% of our gross national product, and topped $7,681 per person in 2008. Soaring health care premiums regularly make front-page news. The average family premium, which stood at $9,160 in 2003, will climb to $13,375 by 2009. How can employers afford to stay in the game? What will they do when their employees’ health insurance costs more than their homes?

The good news is you don’t have to feel that way there is a solution! Employers who participate in our Simple Option Solution (SOS) Program typically save 10-80% per year. Without cutting benefits, changing insurance carriers, or charging employees. And employers can play a part in these savings by understanding how it works. A simple way of providing benefits is to only pay for “benefits used” as opposed to “buying insurance.” Insurers collect premiums to pay for claims, plus more for administration and profit. Nationwide, a dollar of health insurance premium delivers just 85 cents worth of benefits. What if employers could cut out some of this premium and deliver benefits directly? Now they can! ClaimLinx SOS Program uses three proven steps to help employers accomplish just that. 1. Raise Deductibles: You insure your home—but

not for a $40 plumber bill. Who could afford the coverage? You insure your car—but not for a $40 oil change. It would cost a fortune! So why insure employees for $40 office visits? Raising health insurance deductibles works the same way, and cuts premiums up to 80%.

2. Buy Back Benefits: Next, we add a Section 105

medical expense reimbursement plan (MERP) available through the IRS to let employers reimburse employees for medical costs incurred for themselves and their families.

3. Additional Options: Employers can implement

other options such as alternate funding or putting employees on their spouse’s plan or writing individual plans for dependents. Not only does this shift risk away from the group plan, but can add significant savings. In addition, self-funding dental and vision provides even more savings.

What are the current tax options? Cutting insurance coverage is an obvious way for reducing premiums. But cutting benefits creates unhappy employees. ClaimLinx solution is to buy back benefits for less than it costs to provide them through insurance. Employers have several tax-advantaged choices for replacing lost benefits: (c) 2010, ClaimLinx, Inc. All rights reserved. ClaimLinx

Family Premium Costs

$9,160$9,950

$10,880$11,480

$12,100$12,680$13,375

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

2003 2004 2005 2006 2007 2008 2009Source: Kaiser Employer Health Benefits

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Health Savings Accounts begin with high-

deductible insurance policies. Employers or employees then pre-fund savings accounts to cover unreimbursed costs. But this means committing cash whether employees need it or not. Employees can take accounts with them when they leave, which means employers may commit health-care dollars that never get used for their intended purpose.

Flexible spending accounts (FSAs) let employees defer income into pretax accounts for out-of-pocket costs. But there’s little flexibility to change deferrals. Big-ticket expenses like braces for children’s teeth can exhaust accounts early in the year. And employees have to use account balances by year’s end, or forfeit them.

Section 105 medical expense reimbursement plans let employers reimburse employees, as needed, for medical expenses they incur for themselves, their spouses, and their dependents.1 This lets employers pay just $1 for $1 worth of benefits, when employees actually need it.

Healthcare reimbursement accounts (HRAs) are Section 105 plans that let employers pre-fund employee spending accounts and carry balances from year to year. This means committing cash to the plan whether or not employees actually need it for covered costs.

We prefer the Section 105 plan to replace employee benefits because it offers the best combination of savings and flexibility. How does the SOS Program work? The SOS Program allows employers to define who they want to cover, what to cover, and how much to spend: Employers can’t discriminate in favor of highly

compensated employees.2 But they can use a classification test, such as all participants in their group health plan,” to qualify participants.3 They can exclude part-time, seasonal, short-term, and younger employees.4 Self-employed clients operating as sole proprietors can hire their spouse and pay benefits through them.5

Employers choose what to cover and how much to pay, up to the limits of Code Section 213(d).6 Most clients choose simply to replace benefits under their old “first dollar” plans.

Clients can reimburse employees or pay health care providers directly.7

Our plan is considered “unfunded” under ERISA. Plans with less than 100 participants file no Summary Annual Report or Form 5500.

We generally design employers’ plan to mirror the benefits provided the prior year. These designs are to ensure that no benefits will be lost by moving the base plan to the new high-deductible policy. This ensures employees do not lose benefits and limits employer’s potential liability. Step 1 – Keep Same Carrier, Same Benefits

(c) 2010, ClaimLinx, LLC. All rights reserved.

1. Raise Base Plan Deductible

Old Plan – High Premiums– $ 0 EE Deductible

– 20% EE coinsurance

– $ 20 EE Office Visits

– $5 Mil Policy Maximum

New Plan – Low Premiums– $ 0 EE Deductible

– 20% EE Coinsurance

– $ 20 EE Office Visits

$5,000 – HSA Base Plan

35% Savings!

Same Benefits

Buying back benefits through a MERP is financially a better option than pre-funding claims that may never occur. Why not pay for claims only when they occur? ClaimLinx can show employers how to design a plan so their savings is more than their risk. Step 2 – Section 105 MERP Implementation


Define Eligible Employees Must be nondiscriminatory

May use “classification” test:– “all participants in Employer’s

group health plan”

“Safe harbor” exclusions:– Less than 25 hours/week

– Less than 7 months/year

– Less than 3 years service

– Age 25 or under

Define/Deliver Benefits Define eligible expenses

– Copays, deductibles, Rx

– Diagnostic/testing

– Dental/vision/chiropractic

– “Any eligible expense underIRC Section 213(d)”

Add §105(b) to deliver benefits

2. Buy Back Benefits

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In order for employers to get the maximum cost savings, ClaimLinx can implement more options that can provide same or better benefits for employees. These options are voluntary, but some such as vision and dental can be incorporated into an overall financial strategy for the employer and the employee. These options provide instant cash flow for the employer. Step 3 – Additional Cost Savings


3. Additional Options

Alternate Funding – pull off spouses and dependents

for lower individual rates

Institute a “Spousal 105” – redefine eligibility to avoid double-coverage; reimburse with 105 (include Medicare)

Implement self-funded dental and self-funded vision programs to decrease premium expenses

How is administration handled? The SOS program carves out part of the employers’ current major medical coverage and allows ClaimLinx to be the employer’s third-party administrator (TPA). ClaimLinx can deliver the same, or “better benefits” less expensively than the insurance carrier. This adds just one step for employees, and it’s no more difficult than claiming reimbursements under a flexible spending account. Specifically, employees must show two cards at the provider’s office and/or submit the “Explanation of Benefits” (EOB) they receive from their major-medical carrier. ClaimLinx determines coverage under Section 105 plans and will reimburse health care providers and/or employees. Our enrollment presentations educate employees, includes why employers adopted the SOS program and how Claimlinx will manage it. How much can clients expect to save? Let’s look at two clients to see how much can be saved. Our first, a self-employed consultant, paid $900 per month to cover his family. ClaimLinx replaced that expensive policy with a high-deductible plan from the same insurer. It meant up to $5,000 in out-of-pocket costs. But even if he hits that ceiling, he saves nearly $3,000. Self-

employment tax savings add even more to his bottom line.

Case 1

Before

$900/month premium

– no deductible/out-of-pocket

– $15 co-pays

– $10/$20/$40 drug card

$10,800 minimum pretax/year

– $2,700 federal savings

– $ 648 state savings

– $ 0 SE tax savings

$7,472 after-tax cost

After

$265/month premium

– $5000 out-of-pocket max

– 80/20 drug co-pay

– 100% after o-o-p max

$8,180 maximum pretax/year

– $2,045 federal tax savings

– $491 state tax savings

– $1,252 SE tax savings

$4,392 after-tax cost

Consultant/spouse/2 children25% federal tax6% state tax15.3% self-employment tax

Our next client, a Cincinnati-area manufacturer, paid $20,000 per month to insure 30 employees and their families. ClaimLinx raised deductibles and installed the Section 105 plan to buy back benefits. These steps saved $84,00 per year.

Case 2

Before – per month$20,000 major medical

$20,000 total

After – per month$12,000 major medical

$ 1,000 105 reimbursement

$13,000 total

Manufacturer10 Employees - single20 Employees - with family

$7,000/month

Savings

To summarize the SOS Program:

Keep the Same Carrier Provide the Same or Better Benefits Save 10% to 80% on Costs Restructure Finance of Benefits Create instant Cash Flow Personal Administration for Employees Customized Flexible Benefit Design Ongoing Member Education

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What is the Implementation Process? Employers who decide they would like to become a ClaimLinx client and participate in the SOS Program are taken slowly through the process. 1. Prequalification. The first meeting provides

employers with an overview of the SOS Program and its benefits. Prior to the meeting ClaimLinx may collect the current health insurance bill, employee census, benefit summary and related health information. We use that data to customize a proposal and savings projection.

2. Presentation. The second meeting lets clients review the savings projection with key decision makers and outside advisors such as tax attorneys, financial planners and accountants. ClaimLinx also review the advantage of its consulting and administrative services. If employers want to move forward, they enter into a written agreement. If the employer doesn’t want to move forward we part friends and leave the door open to a time when they might feel more comfortable implementing the program.

Plan installation services include complete plan documents; Summary Plan Descriptions; ERISA, HIPAA, FMLA, and COBRA compliance tools; and customized enrollment and administrative tools. Ongoing administration services include claims processing, monthly reports, claims analysis and consulting services. In addition to these service ClaimLinx provides:

Refunds & Rebates 60+ years experience In-House Consulting Live toll-free Customer Service Customized Benefit Designs Claims Analysis & Reporting

Let ClaimLinx show you how to save10% to 80% on providing benefits.

ClaimLinx 10260 Alliance Road

Suite 130 Cincinnati, OH 45242

Phone (513) 677-6262 or (800) 858-1772 Fax (513) 677-6263 or (800) 858-1913

www.claimlinx.com

1 “Dependent” has the same meaning as in IRC §152. 2 IRC §105(h)(2) 3 Reg. §1.105-1(c)(2)(ii) 4 Reg. §1.105-1(c)(2)(iii) 5 Rev. Rul 71-588; PLR 9409006 6 IRC §105(b) 7 IRC §105(b) (“…amounts are paid, directly or indirectly….”)

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