Defined Contribution Health Plans- An Update

Bill Sweetnam

Chris Keller

David Levine

October 19, 2006

Overview Legislative Agenda

Legislative initiatives What happens next year

Recent Guidance HSA final comparable contribution regulations Recent IRS debit card guidance Recent IRS HRA guidance

Implementation Issues Communication Plan sponsor documents & ASO agreements Trends

Legislative Initiatives

Bush Administration Budget Proposals Continued push to expand consumer directed health plans

Health Opportunity Patient Empowerment Act – Ways and Means Committee HRA and FSA transfer to HSA Expand HSA contribution amounts IRA rollover to HSA Comparable contribution to non-HCEs

Finance Committee Hearing

What Happens Next Year?

If House stays Republican Continued movement for more HSA legislation Passage in Senate problematic – regardless what party is

in charge If Democrats take over House

Possible reduction of HSA benefits Veto of any cutback by President

FSA rollover legislation price is too high – despite popularity in both parties

Predict Legislative Stalemate for Next 2 Years

Final Comparable Contribution Regs.

Recent Guidance Final comparability regulations under Treas.

Reg. § 54.4980G (July 31, 2006) govern employer contributions to HSAs Generally require that an employer make similar

contributions to employees’ HSAs or pay 35% excise tax on all HSA contributions

Cafeteria plan exception allows the employer's HSA contributions to be subject to the cafeteria plan nondiscrimination rules under Code section 125 rather than these rules

IRS Debit Card GuidanceRecent Guidance

In Notice 2006-69 (July 11, 2006), the IRS adds three new methods for substantiating claimed medical expenses without the use of paper receipts Inventory Information Approval System Co-payment amounts that are not more than five

times the dollar amount for a particular service An explanation of benefits (“EOB”) from an

insurance company

IRS HRA GuidanceRecent Guidance

In Rev. Rul. 2006-36 (August 14, 2006), the IRS provides guidance regarding distributions from an HRA to an individual who is not an employee, spouse or dependent Domestic Partner coverage should not be affected

as long as value of coverage is imputed to employee’s income at inception

Transition Relief Provided

Defined Contribution Health Plans

Implementation Issues Participant Communications Introduction of Defined Contribution Arrangements Communication of the Evolving HRA and HSA Rules

Plan Features Debit/Credit Cards Investment Funds

Defined Contribution Health Plans

Implementation Issues Plan Sponsor Documents Cafeteria Plan Document Welfare Plan Document Summary Plan Description Funding Vehicle

Service Provider Agreements Administrative Services / Insurance Contract HSA Services Investment Management

Defined Contribution Health Plans

Implementation Issues Recent Issues and Trends HSA Option Versus HSA As Sole Plan HSA ERISA Coverage State Taxation of HSA Benefits Internal Revenue Code Prohibited Transaction Rules HRA Retiree Medical HIPAA Privacy