AFSCME Health Benefits Update

May 3, 2005

The following email newsletter on health benefits is from the AFSCME Department of Research and Collective Bargaining Services. We hope this occasional email will provide you with timely and useful information. If you do not want to receive this email, or want to add someone to our list, please let us know by responding to this message.


Health Savings Accounts: Issues and Implementation Decisions for States

This issue brief provides an overview of HSAs and other tax advantaged savings vehicles. More significantly, it describes states may face if they intend to facilitate implementation of HSAs. For example, IRS rules on HSAs limit first dollar coverage for non-preventative services that could but such first dollar coverage may be subject to a state mandate. In addition, state insurance regulation may inhibit the introduction of the high deductible health plans that must be paired with HSAs. The short issue brief may be found at:

http://www.statecoverage.net/pdf/issuebrief904.pdf


Segal Company 2005 Health Benefit Cost Trends

Segal's survey reveals 2005 costs increases at levels slightly lower than the rate of increase in 2004, but still unacceptably high. PPO costs are projected to increase by 13.1% (including Rx) and HMOs are projected to increase costs by 12.4% (including Rx). Stand alone (carve out) Rx plans are trending up at over 15% for both active and retiree populations. Dental benefit costs are projected to increase by 5% to 7% based on plan type (indemnity, DPO, DMO). The cost trend survey is available at:

http://www.segalco.com/whatsnew.cfm


IRS Clarifies Definition of Eligible Dependents

On October 4, 2004 President Bush signed the Working Families Tax Relief Act ("the Act") of 2004 into law. In addition to extending certain tax breaks, the Act amended the definition of "dependent" in §152 of the Internal Revenue Code (IRC). Shortly thereafter, however, the Internal Revenue Service (IRS) saw inconsistencies in the Act's treatment of existing IRC §§105 and 106, which exclude employer-provided health care benefits from gross income. In order to clarify the ambiguity, the IRS issued Notice 2004-79, "Effect of the Working Families Tax Relief Act of 2004 on Employer-Provided Accident or Health Plans," which states that the IRS will issue regulations that maintain the pre-WFTRA definition of dependent for employer-provided health care benefits. We are aware of a few employers that have claimed the WFTRA requires them to narrow their plan's definition of dependent, but it is our position that, as a result of IRS Notice 2004-79, such action is not warranted. Until the IRS issues its regulations, employers may rely upon Notice 2004-79 which can be found at the following link:

http://www.irs.gov/irb/2004-49_IRB/ar10.html


CMS Develops Website on Hospital Quality

The Centers for Medicaid and Medicare Services (CMS), in conjunction with the Hospital Quality Alliance(HQA), has launched a website that allows the public to compare the quality of care at virtual all accredited hospitals in the US. The database is initially limited to three conditions (heart failure, heart attack and pneumonia) and measures each hospital's compliance with 17 measures of care that relate to the three serious conditions. The website is easy to use and data can be sorted by geography or name. The website can be found at:

http://www.hospitalcompare.hhs.gov/