Summary: Fall 2004

Summary

Fall, 2004

HEALTH SAVINGS ACCOUNTS - A NEW TOOL FOR CONTROLLING HEALTH INSURANCE COSTS

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 created Health Savings Accounts (“HSAs”). HSAs are custodial accounts, similar to IRAs, that can be paired with high-deductible health plans and used to pay for medical expenses with tax-free dollars. Currently the Internal Revenue Code only permits deductions for medical expenses exceeding 7.5% of an individual’s adjusted gross income. Many people never reach this 7.5% threshold and those who normally do have incurred several thousand dollars in medical expenses before they are able to claim any deductions. HSAs provide a vehicle to pay for these first-dollar medical expenses with tax-free dollars.

HSAs are flexible in that they can work with an employer’s group health insurance policy or with an individual medical insurance policy. However, the health insurance policy must be a high-deductible health plan. In order to be a high-deductible health plan, the plan must have a deductible of at least $1,000 for individual coverage ($2,000 for family coverage) and an annual out-of-pocket maximum of no more than $5,000 for individual coverage ($10,000 for family coverage).

A high-deductible health plan is allowed to have a smaller deductible, or even no deductible, for certain types of preventive care including routine health exams, immunizations, and stop smoking programs. However, prescriptions drugs are not considered preventive care and the full deductible must apply to them.

Contributions to an HSA are exempt from income taxes. If an HSA is an option under an employer’s cafeteria plan or the employer makes the contributions, the contributions are also exempt from FICA and FUTA. The annual contribution to an HSA is capped at the amount of the deductible for the high-deductible health plan. However, individuals over age 55 can also contribute an additional $500 per year.

Unlike flexible spending accounts, an individual does not have to use the entire balance in the HSA by the end of the year or risk losing it. An individual may keep the remaining balance in the HSA and even invest all or any portion of the HSA for future medical expenses.

HSAs can be used to pay for medical expenses not covered by the high-deductible health plan. While HSAs cannot be used to pay the premiums for the high-deductible health plans, they can be used to pay for COBRA premiums and long-term care. Amounts withdrawn from an HSA that are not used for allowable expenses are subject to a 10 percent excise tax.

By increasing the amount of first-dollar coverage that employees and individuals pay, HSAs could help reduce the costs for health insurance premiums. Additionally, individuals may be able to build up the balance in their HSAs to cover present, as well as, future expenses incurred after retirement. time.

Please contact us about this exciting new tool.

MANDATORY DISASTER PREPAREDNESS

Have recent terrorist attacks, hurricanes, or other disaster events made you consider if your company or organization should have a Disaster Preparedness and Recovery Plan? Proposed legislation in Congress suggests you may have to.

Currently a bill is being considered in Congress to implement the recommendations contained in the Report of the 9/11 Commission. One of the recommendations may have a substantial impact on private organizations and companies. That 9/11 Commission’s recommendation says, in part: Private sector preparedness is not a luxury; it is a cost of doing business in the post 9/11 world. It is ignored at a tremendous potential cost in lives, money and national security.

The 9/11 Commission endorsed an existing Standard of the American National Standards Institute (“ANSI”) - the “National Standard for Preparedness”. ANSI’s Standard, adopted after input from safety, security and business continuity experts from many fields and from federal, state and local governments, is based on the National Fire Protection Association’s NFPA 1600 Standard on Disaster/Emergency Management and Business Continuity Programs 2004 Edition.

The scope of disasters is quite broad - basically any naturally occuring or man-made disaster event.

The Commission recommendation encouraged the insurance and credit rating industries to look closely at a company’s compliance with the Standard in assessing insurability and creditworthiness. The Commission also said that compliance with the standard should define the standard of care owed by a company to its employees and the public.

Certainly any company or organization with an existing Disaster/Emergency Plan and every company considering adopting a Plan should become familiar with the provisions of NFPA 1600. The Standard provides an excellent roadmap of what should be included in a Plan, the procedures to adopt a plan, and the steps to implement such a Plan.

NFPA 1600 is written for large organizations which have substantial contact with the public. Smaller companies and organizations may find a more modest Plan is sufficient. Never the less, in light of the pending legislation it would be wise to consider how your business or organization would react in the event of an emergency situation and what steps should be taken in advance to prepare for such an event.

NFPA is lengthy and detailed. Call us for help with your preparedness.

ILLINOIS RECENT LEGISLATION- A POTPOURRI

The General Assembly and the Governor created a number of Public Acts in the “Spring” session. Some highlights: P.A. 93-0728 and P.A. 93-0739 restrict the use of Social Security Numbers, the first eliminating their use on insurance cards effective January 1, 2005, and the second, effective January 1, 2006, generally for any identification card or identification required over the Internet unless encrypted or otherwise secure.

P.A. 93-0941 adds “military status’ to the Illinois Human Rights Act as a category of prohibited discrimination. As defined, it includes being a member of a reserve unit, Illinois Army or Air National Guard, in addition to active duty.

P.A. 93-0877 raises the limit on the amount of a decedent’s personal property that can be transferred by the use of a Small Estates Affidavit from $50,000 to $100,000, effective August 6, 2004.

P.A. 93-0915 deals with certain employers being required to give notice prior to plant closing or mass layoffs.

P.A. 93-0942 allows a mother to breast feed her baby in any location where the mother has a right to be with certain exceptions allowed to places of worship.

P.A. 93-0945 will be of interest to businesses and consumers - it deals with gift cards or gift certificates and requires certain disclosures which must be printed on the cards or in the gift certificates in order to comply with the consumer fraud protection law.

The text of these Public Acts and others are at www.legis.state.il.us. If you need further information regarding these or any of the other laws enacted, let us know.

HEALTH INSURANCE COBRA COMPLIANCE

A full year after issuing their first COBRA regulatory guidance in more than a decade, the Department of Labor (DOL) issued their final COBRA regulations on May 26, 2004. As they are slightly different from the proposed regulations, the final regulations require action on behalf of group health plan administrators. The final regulations are intended to simplify plan administration and are effective for plan years beginning after November 26, 2004. Calendar plan years must comply with the regulations by January 1, 2005.

The final regulations require that employees and qualified beneficiaries notify plan administrators upon the happening of certain events. These events include: asecond qualifying event (i.e. divorce or legal separation), loss of dependant child status, or a Social Security Determination of disability. The final regulations clarify that the employee or qualified beneficiary must provide notice of these events within 60 days of the later of the qualifying event or the loss of coverage due to that event.

The final regulations provide that group health plans may satisfy the initial COBRA notice requirements by including notice information in the summary plan description (SPD). However, if a covered employee’s spouse becomes covered under the group health plan after the employee resumes coverage, a separate initial COBRA notice must be provided to the employee’s spouse within 90 days after the spouse becomes covered.

COBRA requires group health plans to provide a written notice containing general information about COBRA rights to covered employees and their spouses “at the time of commencement of coverage” under the health plan. The final regulations state this notice generally must be provided within 90 days of when an employee (or spouse) becomes covered under the health plan. However, if a qualifying event occurs before the end of the 90-day period, the plan will not be required to provide an initial notice, as long as a COBRA qualifying event election notice is provided on time and meets the requirements under the regulations.

The final regulations also have new notice requirements that must be adhered to by plan administrators. The first is the notice of unavailability of continued coverage. A group health plan must send this notice when it receives notice of a qualifying event from a covered employee or qualified beneficiary and determines the individual is not entitled to COBRA continuation coverage. The second new notice requirement is the notice of termination of COBRA coverage. If COBRA coverage is to cease for any reason prior to the maximum period of coverage, the final regulations require the plan administrator notify the qualified beneficiaries of such termination.

LESS CHECK “FLOAT”

Effective October 28, 2004, the Check Clearing for the 21^st Century Act went into effect. As result of 9/11, when the U.S. air system was shut down, the speed of check clearance was heavily impacted. This Act allows banks the option to clear checks electronically in lieu of physically moving the paper check to the bank on which it is drawn. Electronic reproductions of the physical check are created and processed as digitized images of the original checks. Because electronic processing takes the expense and delay out of physical check paper handling, banks are expected to move quickly to the new technology. The Act says the imaged checks are legal documents for tax and other purposes. You may get a combination of cancelled paper checks and imaged reproductions.

Note that while your bank may debit your account faster for checks you write, the Act does not require your bank to give you credit for 3^rd Party checks you deposit to your account. Therefore, you may have to consider overdraft protection. Also, you may want to shop around for banks offering quick “settlement” (i.e. credit to your account) of checks you deposit.

NEW HIPAA SECURITY RULES

If your in-house health plan or business is required to comply with the HIPAA Privacy Rule as a “covered entity”, then you should be prepared for the next wave of compliance, the HIPAA Security Rules. The HIPAA Security Rules are scheduled to take effect for most covered entities on April 21, 2005, but many covered entities have already begun the preparation process. The Rules themselves are administratively complex and broken down into 3 separate categories; Administrative, Technical and Physical Safeguards. While the HIPAA Privacy Rule applied primarily to the right of an individual to control personal medical related information, the Security Rule standards set forth a means of protecting that information, usually by safeguarding it from unauthorized disclosure.

Administrative Safeguards include workforce security such as establishing who has access to computers containing Protected Health Information, the level to which those individuals can obtain or alter the data held on those computers, and formalized termination procedures to ensure that terminated employees no longer have access to the information. Security authorizations, data back-up plans and disaster recovery plans are also mandates under the Rule. Interestingly, Administrative Safeguards also require a contract similar, if not identical in some instances, to a business associate agreement.

Technical Safeguards encompass the ability to transfer secure Protected Health Information via electronic formats. This includes transmission security of data such as appropriate firewalls and data encryption and decryption as well as emergency information access procedures.

Physical Safeguards include access and validation controls of Protected Health Information, maintenance of records, disposal of records and off-site storage security. This section of the Rule could also require a facility security plan which would include identification of workstations and workstation security.

While the Privacy Rules required a covered entity to establish written documentation procedures for tracking the release of Protected Health Information, the Security Rule requires a covered entity to document the decision making process and actions taken to address the risk analysis in each of the above listed categories. Both Privacy and Security Rules require covered entities to establish written office policies and procedures, as well.

The requirements of the Rule seem daunting and there is a large amount of documentation required under the Rule. In a September, 2004 report by the General Accountability Office (GAO), the Rule has been cited by covered entities as “overly burdensome” and requires a substantial amount of planning to stay in compliance.

If your business is a covered entity or you would simply like additional information about compliance with the HIPAA Security Rules, please contact us.

BEFORE WE GO...

We are pleased to announce that F. Richard “Ric” Skweres will become a partner in the firm January 1, 2005. Congratulations Ric!...and to our newest associate Sage Fattahian. Sage has a Masters in Law degree (LLM) in Employee Benefits and comes to us from the U.S. Department of Labor. Sage will primarily practice in the employee benefits, ERISA, and related fields.

Do you or an organization you belong to need speakers for legal topics? We provide attorneys, without charge, to talk about law on topics from arbitration to zoning. Please call any of our attorneys to arrange for an educational presentation to your business, trade association, church, club, or other group or organization.

NOW THE FINE PRINT

Summary is intended to provide only general information for our clients and friends, which information may not be suited to your particular circumstances. Please consult with us about your specific needs.

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© 2004 Lewis, Overbeck & Furman, LLP