The Advantages to Educators of 125 Plans and Alternative Benefit Programs

1. 2009 Best Practices Conference on School Operations, Finance and Business Leadership The Advantages to Educators of 125 Plans and Alternative Benefit Programs Presented by: Lisa Duquette Tracy Mungeam September 24 & 25, 2009

2. Topics For Discussion • Section 125 Plans • Alternative Benefit Programs • Consumer Driven Health Plans • HRA vs. HSA • Healthy Choice Plans

4. Internal Revenue Code Section 125 provides for pre-tax treatment of thefollowing expenses: • Employer Sponsored Insurance Premium Contributions • Medical, Dental, Vision • Group Term Life Insurance less than 50,000 in coverage • Short Term & Long Term Disability • Health Care Reimbursement Account Used to reimburse employees for their family’s out-of-pocket medical expenses that are not reimbursed by insurance or any other source. • Dependent Care Reimbursement Account Used to reimburse employees for the dependent daycare expenses incurred which allows the employee and their spouse (if married) to be gainfully employed.

5. Pre-Tax Treatment: Opportunity for Employees to Save • When employees pay their eligible expenses using Pre-Tax dollars, they SAVE MONEY! • The savings are: • Federal Income Tax (15% - 33%+) • State Income Tax (if applicable) • FICA/Medicare Tax (7.65%) • Total tax savings is anywhere from 22.65% to 35% or more depending on the employee’s federal tax bracket!

6. Opportunity for Employers to Save Too… • Every dollar that goes through the Plan is NOT subject to FICA or Medicare Tax. • Employers’ tax savings is 7.65% of all pre-tax contributions through the plan

7. Section 125 Flexible Benefit Plan Requirements • Plan must be in writing (Plan Documents) and be kept current with latest IRS regulations. • Summary Plan Descriptions must be distributed to Plan participants. • Plan must be administered on a plan year that is best made coincident with your medical insurance plan year. (July 1 to June 30) • Elections once made cannot change during the plan year unless there is a “qualifying event”.

8. Health Care Reimbursement Account Pre-tax treatment for out-of- pocket medical expenses. Election must be made annually and is locked in for the balance of the plan year. Uniform reimbursement – total election must be made available at start of plan year. Use it or lose it – funds must be spent during plan year or be forfeited. 2 ½ month extension possible Dependent Care Reimbursement Account Pre-tax treatment for child care expenses. Election must be made annually and is locked in for the balance of the plan year. Claims are reimbursed based on the cash currently credited to the account. Use it or lose it – funds must be spent during plan year or be forfeited. 2 ½ month extension does not apply Flexible Spending Accounts

9. Flexible Spending Accounts Election Limits

10. Health Care Reimbursement AccountExpenses Eligible for Reimbursement • Dental Care • Cleanings/fillings/x-rays,etc • Dental expense balance after insurance coverage payment • Deductibles or co-insurance • Orthodontia Durable Medical Equipment Hearing aids and batteries Wheelchair/crutches Orthotics Syringes, needles and injections Medical Fees and Expenses Deductibles or co-insurance Co-payments Ambulance Laboratory fees Physicals Hospitalization Sterilization Transplants Vaccinations and immunizations

11. Eligible Healthcare Expenses Continued…… Treatment, Therapy & Wellness Programs Chiropractors Hypnosis for treatment of an illness Mental health care Therapy by licensed therapists Psychoanalysis Acupuncture by a licensed practitioner Alcoholism/drug dependency treatment Weight Loss Programs* Massage therapy* Prescription drugs Co-payments Birth control pills Vision care Lasik eye surgery Contact lenses, supplies and solutions Eye exams and eyeglasses Prescription sunglasses * Must be medically necessary-meaning you have a qualified medical diagnosis and a recommended treatment plan from a health care professional.

12. Additional Eligible Healthcare ExpensesOver the Counter (OTC) Medications/Supplies Analgesics Pedialyte for a sick child Antacids Smoking cessation products Anti-diarrhea medicine Sinus medications Bug bite medicine Hemorrhoid creams & suppositories Calamine lotion Wart Removal products Cold/flu medicines Non prescription birth control Contact lens solution Thermometers Cough drops Nasal Strips Diaper rash ointment First aid kits (including band-aid Motion sickness pills gauze, bandages, cold- hot packs, Menstrual pain & cramp relief rubbing alcohol) Sleeping aids Reading glasses Must be purchased in a reasonable quantity

13. Dependent Care ReimbursementAccounts • Expenses are eligible only if they allow a single parent or both spouses to be gainfully employed, or attend school full time. • Expenses must be for a dependent who can be claimed on your income tax return, who is under age 13, or physically or mentally incapable of caring for him or herself. This may include adults. • The dependent must live in your home at least 8 hours per day. • Eligible day care providers* include: • Day care center, nursery school, summer day camp or before/after school program that meets state and local requirements. Overnight camps and kindergartens are NOT eligible. • Babysitters inside or outside the home as long as they are not your legal dependents. * Please Note: The participant will be required to furnish the tax ID or Social Security number of all providers to the IRS.

15. Consumer Driven Health Plans(CDHPs) • Almost every employer is offering a consumer driven health plan as an option • Only about 6% of employers make CDHPs their sole health plan. • 60% of CDHPs have HSAs, while 40% have HRAs. • HSA linked CDHP enrollment reached 8 million lives at the beginning of 2009. Business Insurance, July 27, 2009, CDHP Enrollment Growing Quickly

16. HRA Employer pays 100% above the out-of-pocket maximum of $2,000 10% Employer pays 90% coinsurance Employer covers preventive care 100% Employee pays the remaining $750 for a total deductible of $1,500 Employee provides a HRA Fund of $750 Consumer Driven Health Plans – Sample Design Fund Amount Deductible Coinsurance OOP Maximum $750 $1,500 90% $2,000 $500 $750 $750

17. Consumer Driven Health Plans - Savings • Studies indicate savings from implementing CDHPs • Companies with a CDHP experienced a two-year cost increase trend of 5.5% versus 7% for companies without a CDHP1 • Milliman analysis shows when offered a new choice CDHPs deliver 1.5% in savings beyond non-CDHPs based on a typical risk and benefit adjustment factors2 • Aetna study indicates that employers who offer their CDHP as an option experience annualized cost trend that is 1.7% lower than PPO trend3 • CIGNA study indicates medical cost trend for CDHP was lower in both first and renewal plan years with approximate savings of 2% annually in renewal years4 1 Watson Wyatt/National Business Group on Health Survey: March 13, 2008 2 Managed Healthcare Executive: May 1, 2008 3 Managed Healthcare Executive: July 13, 2009 4 CIGNA Choice Fund Experience Study: January 2009

18. HRA vs. HSA Comparison Chart

19. HRA vs. HSA Comparison Chart

20. HRA vs. HSA Comparison Chart

21. HRA vs. HSA Comparison Chart

22. HRA vs. HSA Comparison Chart

23. Healthy Choice Plans Employee Enrollment Healthy Choice Plan Richer Benefit Schedule Traditional Choice Lower Benefits No Yes Complete HRA HRA results prompt eligibility for appropriate health interventions Health Improvement Programs are Available Must enroll and participate in one intervention based on individual need Low Risk Low Risk Moderate Risk Moderate Risk High Risk High Risk Chronic Disease Chronic Disease • Target areas: • Physical activity • Nutrition • Healthy decisions • Web-based lifestyle behavior maintenance programs • Health action programs • Targeted risk factors: • Smoking • Physical Inactivity • Overweight • Stress • Six-month phone-based lifestyle behavior change programs • Web-based lifestyle behavior change programs • Targeted risk factors: • Smoking • Physical Inactivity • Overweight/Obesity • Stress • High blood pressure • High cholesterol • 12-month phone-based lifestyle behavior change programs • Web-based lifestyle behavior change programs • Disease management program: • Treatment and drug compliance • Behavioral focus • Lifestyle behavior modification • Psychosocial support • Self-management skill development Must be actively participating or completed appropriate intervention to stay in the healthy choice plan the following year.