by on April 14, 2012 3 Comments

Health Insurance Plans in US

Comprehensive health insurance plans are the standard approach. Although they have eliminated the need for much coverage formerly introduced as separate plans, dental insurance, vision insurance, and prescription drug coverage’s have, for the most part, continued to be offered as separate plans. In addition, a relatively new coverage, long-term care insurance, is also offered as a separate product.
Dental Insurance Plans
Group dental insurance has been one of the fastest-growing employee benefit plans. A group dental insurance plan provides coverage’s for almost all dental expenses. A unique characteristic of dental insurance is the inclusion of benefits for both routine diagnostic procedures (e.g., oral examinations and X-rays) and preventative dental treatment (e.g., teeth cleaning and fluoride treatment). Benefits may be provided on a scheduled basis, on a nonscheduled basis, or on some combination of the two. A scheduled dental plan provides benefits up to the amount specified in the fee schedule. Most scheduled dental plans provide benefits on a first-dollar basis and contain no deductibles or specified coinsurance percentage. Benefit maximums are often lower than reasonable and customary charges leading to a cost savings by the employer.
Nonscheduled plans, often called comprehensive dental plans, resemble major medical expense contracts because dental expenses are paid on a reasonable and customary basis, subject to any exclusions, limitations, or co-payments in the contract.

They usually include both deductibles and coinsurance provisions, but the provisions may vary for different classes of dental services. The typical plan classifies dental services into broad categories:
• diagnostic services
• basic services (e.g., fillings, oral surgery, periodontics, and endodontics)
• major services (e.g. inlays, crowns, dentures, and orthodontics)

Diagnostic and preventative services are typically not subject to a deductible or coinsurance, The other two categories are generally subject to an annual deductible (e.g., between $50 and $100 per person) and a coinsurance provision (e.g., 50 to 80 percent). The cost of basic services may be reimbursed at a high percentage (e.g., 80 percent) in contrast to major services, which are subject to a lower percentage (often 50 percent). There is also a maximum for benefits payable to any one person.
Vision Care Insurance Plans
Medical expense coverage’s long have covered expenses for diagnosis and treatment of an illness or injury of the eye. Vision care expense plans, on the other hand, provide reimbursement for the cost of eye examinations to determine whether the individual needs glasses and, if so, for the cost of required frames and lenses. Single vision, bifocal, and trifocals lenses usually are covered, as are contact lenses and other aids for subnormal vision. To minimize over utilization, coverage usually is limited to only one examination and one pair of lenses or contacts in any 24 consecutive months. Medical or surgical treatment, sunglasses, safety glasses, and duplication of existing lenses or frames because of breakage or loss are commonly excluded. Dental and vision care plans are really not insurance but prepayment plans.

Long-Term Care Plans
Long-term care (LTC) is a relatively new addition to the insurance industry, and its products are still evolving to meet consumer needs. The growth of group LTC insurance can be described as slow and cautious. Adequate actuarial data needed to design and price coverage has not been available. Also, until recently, the tax status of group LTC coverage has been uncertain. Finally, participation in group plans has been modest because older employees who believe that they need the coverage often found it too expensive. In general, employers have been reluctant to contribute toward the cost of LTC programs. Most of the early group LTC policies were designed for specific large employers, and much variation existed. Today, most insurers have a standard group LTC contract, which in virtually all cases is consistent with the provisions in the NAIC Long-Term Care Insurance Model Act. Group LTC policies tend to be comparable to the broader policies sold in the individual market. The primary purpose of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was to help ensure that individuals would not lose their medical coverage or be subject to new preexisting condition periods when they changed or lost their jobs. The bill included an increased health insurance premium tax deduction for the self- employed and provisions to reduce fraud and to simplify administrative systems. The bill also included LTC insurance consumer protection standards and provisions clarifying the federal tax treatment of the long-term care policies.

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by on April 14, 2012 1 Comment

Flexible Benefit Plans in US

Flexible benefit plans can provide a variety of benefits, one of which can be an effective cost containment tool.
Cafeteria Plans
The term cafeteria plan refers to an employee benefit plan in which choices can be made among several different types of benefits. Section 125 of the Internal Revenue Code provides favorable tax treatment to a cafeteria plan under which all participants are employees who may choose among two or more benefits consisting of cash and qualified benefits. Qualified benefits include most welfare benefits ordinarily resulting in no taxable income to employees if provided outside of a cafeteria plan. Employees have taxable income only to the extent that they elect normally taxable benefits cash and employer-paid group term life insurance in excess of $50,000. In general, a cafeteria plan cannot include retirement benefits except for a 401(k) plan. Some benefits cannot be provided under a cafeteria plan, for example, scholarships and fellowships, transportation benefits, educational assistance, no-additional-cost services, and employee discounts.
A common type of cafeteria plan is one that offers a basic core of benefits to all employees, plus a second layer of optional benefits that permits an employee to choose benefits beyond those of the basic package. These optional benefits can be purchased with additional contributions or dollar/credits given to the employee as part of the benefit package. Another cafeteria plan is one in which an employee has a choice among a limited number of predesigned benefit packages. The predesigned packages may have significant differences or they may be virtually identical, with the major difference being in the option selected for the medical expense coverage. For example, the plan may offer two traditional insured plans, two HMOs, and a PPO. The increased choices provided covered employees naturally lead to some adverse selection. As a result, more and more employers are integrating flexible benefits and managed care to maximize employee incentives to elect and use cost-effective managed care programs.
Flexible Spending Accounts
In addition to normal cafeteria plans, Section 125 also allows employees to purchase certain benefits on a before-tax basis through the use of a flexible spending account. A flexible spending account (FSA) allows an employee to fund certain benefits on a before-tax basis by electing to take a salary reduction, which can then be used to fund the cost of any qualified benefits included in the plan. FSAs are used for medical and dental expenses not covered by the employer’s plan and for dependent care expenses. FSAs can be used by themselves or incorporated into a more comprehensive cafeteria plan. The cafeteria plans of most large employers are designed with an FSA as an integral part of the plan. The amount of the salary reduction must be determined prior to the beginning of the plan year. If the monies in the FSA are not used during the plan year, they are forfeited and belong to the employer. The growing interest in cafeteria plans on the part of employers can be traced generally to a belief that (1) employees better perceive the value, nature, and relative costs of the benefits being provided; (2) a flexible benefit structure meets the varying and changing needs of individual employees; (3) because cafeteria plans may involve a limiting of employer contributions, this approach provides opportunities to control escalating benefit levels and costs; and (4) it is an effective way to direct employees into managed care with limited access to providers.
Medical Savings Accounts
A medical savings account is a tax-exempt, custodial account established for the purpose of paying medical expenses in conjunction with a high-deductible ($1,500 to $2,250 for single individuals and from $3,000 to $4,500 for families) major medical policy. The account is a savings account into which the insured (or an employer) can deposit money to be used for medical expenses not covered by insurance such as deductibles, eye glasses, or routine office visits. In contrast to FSAs, funds not used are allowed to accumulate and grow to help offset future expenses. Any funds not spent from the MSA eventually revert to the insured. This provides an incentive for the insured to spend carefully because the MSA funds are, in effect, his or her own money.
MSAs may be established by self-employed individuals or any employees of businesses with 50 or fewer employees who are covered under an employer-sponsored high-deductible health insurance plan. This program, established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA), is a four-year “pilot” program ending on December 31,2000, at which time Congress will evaluate the success of the program. Some believe that MSAs may make sense when used with traditional indemnity plans but not with managed care plans. An argument against MSAs is that employees will focus on receiving cash at the end of the year by minimizing treatment for minor medical expenses and preventative care. This could lead to major expenses that could have been avoided or minimized with earlier treatment. Proponents argue that any technique that lowers costs for employers will encourage some small employers to provide coverage that would have previously been unaffordable. The most significant unresolved issue regarding MSAs is the challenge of incorporating them into a managed care environment.

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by on April 14, 2012 1 Comment

Medical Expense Insurance Benefits

 In the case of employer-provided medical expense insurance benefits, employer contributions are deductible by the employer and are generally not taxable income to the employee. Benefits received by an employee are not taxable to an employee unless they exceed the medical expenses incurred. In self-insured medical expense reimbursement plans, benefits to highly compensated employees may be taxable if the plan discriminates in favor of such individuals. Because health insurance benefits realistically are not available for other types of consumption or for savings, it is logical that they should not be subject to a tax levied on net income. Another important policy justification for the health benefit exclusion is to encourage the purchase of private insurance to minimize the role of government in bearing the burden of health care costs.

Disability Income Benefits
As with all types of health insurance benefits, premiums (or other employer contributions) paid by an employer for disability income insurance for employees are generally tax deductible by the employer and are not taxable income to the employee. Employee contributions, on the other hand, are not tax deductible by the employee. Consistent with these two rules, the payment of benefits under an insured plan or a non-insured salary continuation plan result in taxable income to the employee to the extent that benefits received are attributable to employer contributions. Thus, under a noncontributory plan, the benefits are included in an employee’s gross income. Under a partially contributory plan, benefits attributable to employee contributions are received free of federal income taxation and benefits attributable to employer contributions are includable in gross income (employees are eligible for a tax credit, however). A tax credit is available to persons who are totally and permanently disabled. This credit is taken on the employee’s federal income tax return. The maximum credit is $750 for a single person and $1,125 for a married person filing jointly.

Long-Term Care Plans
It is easy to conclude that health insurance benefits utilized to pay for an operation or a physician’s examination should, as a matter of public and tax policy, be excludable from income. However, uncertainty has existed about the tax treatment of LTC mainly because LTC involves a combination of services, some of which are health care and others of which appear more like personal items (e.g., room and board in an assisted living facility). This uncertainty was resolved for certain types of policies with enactment of HIPAA. The legislation clarified that qualified LTC costs and benefits generally will be treated the same as other health costs and benefits.

If policies and insurers follow the consumer protection standards included in the law, such policies receive the following tax treatment:
• In general, benefits are excluded from taxable income. Benefits paid by per diem—based policies are tax free up to $175 a day, indexed for inflation. Insurers must report to the IRS the amount of LTC insurance benefits paid.
• Insurance premiums and out-of-pocket spending for LTC services qualify as medical expense deductions subject to the standard limitation. There are limits on the premium deduction based on age.
• Self-employed individuals can deduct LTC insurance premiums from their income, beginning with 40 percent in 1997 and ultimately reaching 80 percent of the premium in 2006.
• Employer contributions to an employee’s LTC premium are excluded from taxable income of the employee. LTC insurance cannot be offered, however, as part of a cafeteria plan.

Passage of HIPAA is expected to increase interest in LTC insurance through the tax changes. Additionally, many consumers will learn about ETC insurance for the first time as a result of learning about the new tax treatment.

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