Tag Archives: Stephanie Peterson

Health savings accounts (HSAs): A more substantial retirement savings tool

Health savings accounts (HSAs) have been in the news recently and for good reason. First introduced in 2003, the HSA is a tax-advantaged medical savings account available to taxpayers in the United States who enroll in a qualified high-deductible health plan (HDHP). Since their introduction, these savings accounts have proven to be valuable for participants as they offer a number of tax advantages for qualified health benefit expenses. Recent changes proposed within the Senate and House bills during the effort in 2017 to repeal and replace the Patient Protection and Affordable Care Act (ACA) are supporting even further expansion of HSAs, creating even more of an advantage. With these changes, HSAs stand to compete with other standard retirement savings mechanisms, such as tax-deferred 401(k) savings plan contributions, potentially even pushing them into the forefront.

The tax code places certain annual limits on contributions to HSAs, as well as the HDHP’s deductible and out-of-pocket maximum. For individual coverage for 2018, the maximum contribution to an HSA is $3,450, the minimum deductible is $1,350, and the maximum out-of-pocket limit is $6,650. These limits are doubled for family coverage. The standard advantages for HSA participants have not changed since they were first introduced in 2003:

• Contributions to HSAs are tax-exempt.
• Those same contributions can be invested and any investment income and appreciation are also tax-exempt.
• Withdrawals are tax-exempt as long as participants use the withdrawal to pay for qualified medical expenses, such as doctor’s visits, prescription drugs, and dental care.
• HSA funds roll over and accumulate year to year if they are not spent. They are owned by the individual.
• HSA plan contributions are not subject to Federal Insurance Contributions Act (FICA) tax whereas 401(k) plan contributions are.

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Health and welfare plan considerations for M&As

This blog post first appeared on RetirementTownHall.com. It is part of a blog series that highlights considerations for and the impacts of employee benefit plans on mergers and acquisitions (M&A) transactions. To learn how Milliman consultants can help your organization with the employee benefits aspects of M&As, click here.

When considering health and welfare benefit plans as part of a merger or acquisition, remember that the due diligence you complete can impact the purchase price, uncover hidden risks, and be a critical component in the new company’s benefits strategy. Here are three steps you can take up-front to help ensure a smooth transaction and integration.

1. INITIAL DUE DILIGENCE REVIEW
A sound due diligence analysis will allow the buyer to make informative, data-driven decisions. A good analysis identifies items, such as a realistic evaluation of the cost of the health and welfare plan(s) being acquired, the baseline risk profile between the buyer and seller, an understanding of plan administration processes, including reporting and compliance risks, and any hidden risks, such as large claims or pending litigation. Specifically, this analysis should:

  • Assess the seller’s existing compliance documentation and administration
    • Plan documentation, participant notifications, and required notices
    • Collective bargaining agreements
    • Documentation of Internal Revenue Service (IRS) nondiscrimination rules compliance
    • ERISA compliance in accordance with fiduciary, plan administration, and reporting/disclosure rules
  • Identify potential liabilities, such as:
    • Benefit commitments to employees, retirees, bargaining groups, executives, and terminated business units (this may require a review of employment practices as well as formal programs)
    • Vendor relationships—contractual commitments, lawsuits regarding plan administration, and performance-related payments
    • Financial liabilities—post-retirement benefit plans, incurred but not reported (IBNR) claims calculations for health plans, claims liabilities (large claims), and tax/regulatory penalties
    • Other benefits—vacation/sick leave, severance plans
  • Include retiree health commitments and other coverage as promised by seller
    • Duration/extent of commitments and the extent of “vested” benefits as well as the buyer’s ability to amend or terminate the commitments
    • Analysis of whether retiree benefit commitments are fully insured or self-funded
    • Funded status of retiree commitments and coverages
  • Compare benefit plan designs between buyer and seller to assess potential impact of plan design differences and different levels and types of benefits offered by both organizations

2. PLANNING FOR POST-MERGER CONSOLIDATION
After a sound due diligence analysis, it’s important to determine how the benefits for the post-acquisition organization should be structured. An experienced consultant can help guide you through the evaluation process, developing solutions that fit the requirements of the new company. Here are some things to consider as you optimize your new company benefits strategy:

  • How do the workforce requirements and employee demographics vary?
  • How large is the gap between the two organizations’ benefit programs (considering plan design, cost variations, vendor differences, etc.)?
  • How different are the two company cultures and how do the benefit plans reflect those cultures?
  • To what degree should benefit design and administration vary across subsidiaries or business lines?
  • Should benefit plan administration be outsourced, co-sourced, or handled internally?

3. MANAGING THE MERGED ORGANIZATION
Once the deal closes, it’s time to look into future and execute an optimized benefits strategy for the new company. Depending on the business decisions considered above, the buyer may steer toward a particular future benefits strategy for the combined company. Below are two possible benefits strategies and considerations for each.

  • Maintain separate plans: In a decentralized organization with multiple business units, this may be the preferred approach. It will be important to evaluate the impact of the controlled group rules when setting up the compliance strategy in this situation. A thorough review of all plan documents, contracts, and practices will be key to determine if plan amendments of other changes will be necessary. Division of responsibilities between the buyer and seller with respect to contributions, reporting, and administrative duties relating to the current plan year and the preceding plan year will need to be determined. The buyer will need to consider whether it wants to take the responsibility for the prior operation of a plan. This would include any penalties from prior violations, including minimum funding rules, reporting and disclosure rules, compliance with ERISA, etc.
  • Integrate plans—terminate seller’s plan and integrate seller’s employees into buyer’s plan: This strategy provides for the most cohesiveness and integration among all employees involved. It allows for greater leverage with vendor negotiations. Consideration should be given to “right to change” or “termination of benefits” provisions within the seller’s existing medical benefits program (e.g., retiree medical benefits). Consolidation of vendors could be a major task. Lastly, consideration must be given for midyear plan changes and whether they will prompt items such as termination penalties and runoff termination liabilities. Overall, there are many health and welfare factors to be considered in an M&A transaction. To the extent these health and welfare factors create a liability to the buyer, it should decrease the purchase price. Similarly, if these factors represent a hidden asset of the seller, an increased purchase price may be appropriate.

Top Milliman blog posts in 2014

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

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Private health exchange reading list

Employers are increasingly considering the option of offering their employees health insurance through private health exchanges (PHEs). Plan sponsors should understand the financial and administrative implications involved with PHEs before opting into one. The following list of articles from Milliman consultants can help employers evaluate key issues regarding PHEs.

Private exchanges: The future for large plan sponsors or a passing fad?
By Troy Filipek, Gregory Herrle, and Paul Houchens

Private exchanges and plan sponsors: The headlines, facts, opportunities, and potholes
By Robert Schmidt and Suzanne Taranto

Private health exchanges for large employers: Some questions to ask
By Dan Bostedt

Four things employers should know when evaluating private health exchanges
By Mike Williams and Stephanie Noonan

Four things employers should know when evaluating private health exchanges

Williams-MikeNoonan-StephanieOver the last year, employers have been inundated with information relating to private health exchanges (PHEs). During this time, three things have become clear: private exchanges are a significant development, interest in them is growing, and, for many, the importance of receiving unbiased information has become a priority.

As employers seek information, a core question continues to be, “How do I evaluate private health exchanges to determine which, if any, is a good fit for my organization, employees, and bottom-line financial goals?” The four considerations below provide a helpful guide to begin this evaluation process.

The PHE landscape
While public exchanges have been in the news since the Patient Protection and Affordable Care Act (ACA) was passed, PHEs have been in existence for several years in various forms. PHEs may be discussed in the same context as the public exchanges, but they are not the same. Unlike public exchanges, PHEs are not affiliated with the ACA and are not eligible for additional cost-sharing or federal premium subsidies. But it is important to note that properly structured PHEs can help employers meet ACA regulations, as long as they satisfy certain requirements and meet the affordability definition.

It is also important to note that not all PHEs are the same. Some are offered only on a fully insured basis or for retiree populations. Others may offer medical coverage only or a full spectrum of coverage types. In addition, PHEs may include a single carrier or multiple carriers. Because of these and other complexities, a comprehensive exchange analysis can be helpful to employers who are evaluating PHEs as part of their overall benefits strategy.

It’s not just the landscape employers need to be aware of; who is managing that landscape is of equal importance. For example, many consulting/brokerage firms offer proprietary PHE platforms. If your trusted advisor is also providing a PHE, it is important to pursue an independent analysis of all the offerings available to you.

The level of strategy support
When considering a PHE, you should take the opportunity to reevaluate your benefits strategy. Think about your desire for plan design control and the role you want to play in pricing and coverage. Moving to a PHE may mean you have less control than you’ve had in the past. Evaluating from a strategic and financial perspective is important.

Strategic
• Do you see more value in offering a wider array of choices to recruit and retain employees?
• Are you willing to sacrifice control for a benefits package that gives employees more choice?
• Do you want to play a lesser role in healthcare delivery?
• Is your wellness strategy supported by a PHE?
• Are your competitors migrating to a PHE platform?

Financial
• Are you more interested in cost predictability over cost savings?
• To what degree are you willing to shift trend risk to employees by adopting a defined contribution strategy?
• Do you plan to fund the employer contribution via a Health Reimbursement Account (HRA) or other funding arrangement?

Having a general idea of the answers to these questions can go a long way in assisting your PHE evaluation efforts. Be sure to take some time and consider them carefully.

The impact to your employee population
From one vantage point, the increase in choice can help employees better tailor a benefits package that fits their particular needs. Some employees may find this prospect appealing, which can have a direct impact on retention and recruiting efforts.

However, more decision-making responsibilities plus more choices can lead to “analysis paralysis.” When people are overwhelmed with choices, they may abandon the process, select the cheapest option, or stay with current options out of habit. Analysis paralysis may lead to uninformed decisions, causing employees not to choose the best election for them or the most efficient option for the employer. Therefore, decision-support tools—such as online technology and call center representatives—are a critical component when introducing a PHE. It is also important to remember that some employee groups have limited access to technology and that customized personal assistance will likely be needed in these situations.

As a final caution, consider employees’ price sensitivities as they begin to pay larger portions of healthcare service costs, which is due to the inclusion of high-deductible health plans in many PHEs. While carriers within a PHE may show differences in how the procedure is covered and which providers are in and out of the network, transparency tools allowing employees to “shop” for lower-cost procedures are not yet the norm. Therefore, employee education about the plan itself and available transparency tools is key to a successful implementation.

The change process for your benefits team
A PHE may be a good alternative for employers looking to outsource day-to-day administration. However, it is important to factor in the transition process for the HR and Benefits teams, as well as the division of labor between your team and the PHE. Take into account tasks such as:

• Coordination of major life events, COBRA administration, and general employee service issues
• Compliance with ACA and other regulations
• Interaction of Human Resources Information System (HRIS) with the PHE’s database
• Employee communication
• Annual enrollment support
• Any additional training that may be required for your benefits service center

Ultimately, only time will tell the full impact PHEs will have on healthcare. However, as they gain traction in the marketplace, many employers are realizing the importance of considering them as a viable option.