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Understanding MD Employee Accident and Health Benefits

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Tax-free benefits provided to employees

[By Perry D’alessio CPA]

perry-dalessio-cpaMore and more physicians are employees; not employers.

So, here are the most common types of tax-free benefits provided to employees.

They include payments for health care insurance, payment to a fund that provides accident and health benefit directly to the employee, company direct reimbursements for employee medical expenses and contributions to an Archer MSA (medical savings account).

The IRS definition of employee, for health care benefit purposes, is very broad

Health benefits are exempt from income, FICA and FUTA (Federal Unemployment Tax).    This saves the employer 7.65% that would otherwise be the “matching” 6.2% Social Security tax and the 1.45% Medicare Tax components due if these were true wages.  The employer also saves the 0.8% FUTA tax, but since FUTA taxes only the first $7,000 of calendar year wages, per employee, this usually doesn’t factor in.

Calculation:

If you pay the full state unemployment tax, then your FUTA tax = Gross Salary * .08% – The maximum amount is $56 per employee:

  • $50,000 Salary = ($7,000)*(.8%) = $56.00
  • $5,000 Salary = ($5,000)*(.8%) = $40.00

The hospital employee saves federal income taxes on health benefits received, at their marginal tax rate, and, their components of FICA taxes. Depending on the coverage provided, these plans, when fully funded by the employer, can save the employee thousands of dollars in taxes each year.

IRS restrictions include:

  • Certain payments to S Corporation employees who are 2% shareholders are subject to FICA taxes.
  • Certain long term care benefits.
  • Certain payments for highly compensated employees.

Example 1: Let’s say the annual cost of providing medical coverage for an employee, age 50, with a spouse and two minor children is $7,500. An employee in the 30% tax bracket who received this amount in cash each year and then paid for his or her own medical coverage would be liable for as much as $2,250 in income taxes. In addition, FICA taxes save another 7.65% or $574, for a total savings to the employee of $2,824. The employer saves $574 in FICA taxes.

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Conclusion

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Physician Creditor Protection for IRAs, Annuities and Insurance for 2014-15

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A SPECIAL ME-P REPORT

###

Asset Protection Planning for Qualified and Non-Qualified Retirement Plans, IRAs, 403(b)s, Education IRAs (Coverdell ESAs), 529 Plans, UTMA Accounts, Health/Medical Savings Accounts (MSA/HSAs), Qualified and Non-Qualified Annuities, Long-Term Care Insurance, Disability Insurance and Group, Individual and Business Life Insurance [Ohio Focus]

By Edwin P. Morrow III; JD LLM MBA CFP® RFC®

[©2007-12-14. All rights reserved. USA]

EDITOR’S NOTE:

Hi Ann,

A couple years ago you posted an earlier version of the attached Asset Protection Outline. I updated it to include quite a bit more discussion of different protection levels for various kinds of accounts, and included more discussion of states other than Ohio, including a 50 state chart with IRA/403b protections.

So please delete the old one and replace with this one which contains more topics, including some substantial discussion of issues regarding current class action litigation jeopardizing asset protection for Schwab and Merrill Lynch IRAs.

Regards
Ed

###

The Importance of Asset Protection as Part of Financial and Estate Planning for Doctor’s and Medical Professionals

Asset Protection has become a ubiquitous buzz-word in the legal and financial community. It often means different things to different people. It may encompass anything from buying umbrella liability insurance to funding offshore trusts.

What is most likely to wipe out a client’s entire net worth? An investment scam, investment losses, a lawsuit, divorce or long-term health care expenses? “Asset Protection” may be construed to address all of these scenarios, but this outline will cover risk from non-spousal creditors as opposed to risk from bad investments, divorce, medical bills or excessive spending. Prudent business practice and limited liability entity use (LP, LLP, LLC, Corporation, etc) is the first line of defense against such risks. Similarly, good liability insurance and umbrella insurance coverage is paramount.

However, there is a palpable fear among many of frivolous lawsuits and rogue juries [especially among physicians and medical professionals]. Damages may exceed coverage limits. Moreover, insurance policies often have large gaps in coverage (e.g. intentional torts, “gross” negligence, asbestos or mold claims, sexual harassment).

As many doctors in Ohio know all too well, malpractice insurance companies can fail, too. Just as we advise clients regarding legal ways to legitimately avoid income and estate taxes or qualify for benefits, so we advise how to protect family assets from creditors. Ask your clients, “What level of asset protection do you want for yourself?

For the inheritance you leave to your family?” Do any clients answer “none” or “low”? Trusts that are mere beneficiary designation form or POD/TOD substitutes are going out of style in favor of “beneficiary-controlled trusts”, “inheritance trusts” and the like.

Table of Contents

While effort is made to ensure the material is accurate, this material is not intended as legal advice and no one may rely on it as such. Sections II(d), II(i), V, VI and XI were updated Feb 2012, but much of the material and citations have not been verified since 2010. Permission to reprint and share with fellow bar members is granted, but please contact author for updates if more than a year old.

T.O.C. [Page Number]

I. Importance of Asset Protection 2

II. State and Federal Protections Outside ERISA or Bankruptcy 4

a. Non-ERISA Qualified Plans: SEP, SIMPLE IRAs 5

b. Traditional and Roth IRAs, “Deemed IRAs” 7

c. Life Insurance 9

d. Long-Term Care, Accident/Disability Insurance 13

e. Non-Qualified Annuities 13

f. Education IRAs (now Coverdell ESAs) 16

g. 529 Plans 17

h. Miscellaneous State and Federal Benefits 18

i. HSAs, MSAs, FSAs, HRAs 18

III. Federal ERISA Protection Outside Bankruptcy 20

IV. Federal Bankruptcy Scheme of Creditor Protection 26

V. Non-Qualified Deferred Comp – Defying Easy Categorization 30

VI. Breaking the Plan – How Owners Can Lose Protection 32

(incl Prohibited Transactions and Schwab/Merrill Lynch IRA problems) 35

VII. Post-Mortem – Protections for a Decedent’s Estate 51

VIII. Post-Mortem – State Law Protections for Beneficiaries 52

IX. Post-Mortem – Bankruptcy Protections for Beneficiaries 54

X. Dangers and Advantages of Inheriting Through Trusts 56

XI. Piercing UTMA/UGMA and Other Third Party Created Trusts 59

XII. Exceptions for Spouses, Ex-Spouses and Dependents 61

XIII. Exceptions when the Federal Government (IRS) is Creditor 62

XIV. Fraudulent Transfer (UFTA) and Other Exceptions 68

XV. Disclaimer Issues – Why Ohio is Unique 69

XVI. Medicaid/Government Benefit Issues 71

XVII. Liability for Advisors 72

XVIII. Conflicts of Law – Multistate Issues 73

XIX. Conclusions 75

Appendices

A. Ohio exemptions – R.C. §2329.66 (excerpt), §3911.10, §3923.19 78

B. Bankruptcy exemptions – 11 U.S.C. § 522 excerpts 80

C. Florida IRA exemption – Fla Stat. § 222.21 (note-may be outdated) 85

D. Sal LaMendola’s Inherited IRA Win/Loss Case Chart 86

E. Multistate Statutory Debtor Exemption Chart 88

###

Assessment

This outline will discuss the sometimes substantial difference in legal treatment and protection for various investment vehicles and retirement accounts, with some further discussion of important issues to consider when trusts receive such assets.

Beware of general observations like: “retirement plans, insurance, IRAs and annuities are protected assets” – that may often be true, but Murphy’s law will make your client the exception to the general rules. The better part of this outline is pointing out those exceptions.

2012 WHITE PAPER LINK:

Creditor Protection for IRAs Annuities Insurance Nov 19 2010 WC CLE Feb 2012 update

***

2014 WHITE PAPER LINK UPDATE:

Optimal Basis Increase Trust Aug 2014

***

ABOUT THE AUTHOR:

Mr. Edwin P. Morrow III, a friend of the Medical Executive-Post, is a Wealth Specialist and Manager, Wealth Strategies Communications Ohio State Bar Association Certified Specialist, Estate Planning, Probate and Trust Law Key Private Bank Wealth Advisory Services. 10 W. Second St., 27th Floor Dayton, OH 45402. He is an ME-P “thought leader”.

Constructive criticism or other comments welcome.

Conclusion

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Should Health Insurance Pay for Patient Exercise Programs?

Or – Enough with the “Benefits” Already!

By Dr. David Edward Marcinko MBA, CMP™

[Former Licensed Insurance Agent]

[ME-P Editor-in-Chief]

An editorial just published in the Journal of the American Medical Association says research supports consideration of a wider policy of reimbursing for structured exercise programs, particularly in high-risk groups, such as diabetics.

Link: http://jama.ama-assn.org/content/305/17/1808.full

Present Status

Currently, health-insurance plans don’t treat exercise as medicine; only some plans offer a fitness benefit, usually a partial reimbursement for gym membership.

Link: http://blogs.wsj.com/health/2011/05/04/reader-consult-should-insurance-reimburse-for-exercise-programs/

Yet, the push for this benefit does seem to be growing.

My Opinion

And yes, as a doctor and surgeon who treated diabetic bone and soft tissue infections, ulcers and related necrotic gangrene for two decades, there’s something to this philosophy in-theory. But, this “theory” is not grounded in risk-management principles or economic sense; and it does seem counter-intuitive to most insurance models that I know.

Note: Most adult diabetics are Type II, maturity onset and controllable.

Examples

For example, auto insurance does not pay for routine car maintenance, nor does home owner’s insurance or most other standard insurance policy types.

Question: Why should health insurance be any different?

Answer: Because it is a public good.

Oh, come on now!  Obeying moral codes and legal boundaries is also a public good for civility; but we don’t mitigate the risk of breaking them with insurance policies; do we?

Why? They would be too expensive. Believe me, if insurance companies thought they could make a buck this way, they surely would!

Assessment

Aren’t these types of benefits already in place in some Flexible Spending Accounts, High Deductible Medical [Health] Savings Accounts , and employee cafeteria plans, etc.

Moreover, don’t we all know that we aren’t supposed to smoke, use street drugs, drink excessively, pig-out, or have promiscuous sex? Yet – we still do – like the diabetic who excessively indulges.

If you want to get-or-stay healthy[ier]; exercise more and eat less. A simple – understandable – and free healthcare Rx; but no best selling book, “breaking news” or JAMA report, here.

Conclusion

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Why Health Savings Accounts are No Longer a Banking Industry Pariah

The High Deductible Insurance Competition Heats Up

By Dr. David Edward Marcinko; MBA

[Editor-in-Chief]

As ME-P readers are aware, I’ve had a High Deductible Healthcare Plan [HDHP] coupled with a Health Savings Account [HSA] for my family, and consulting firm, for more than a decade. We’ve been very pleased with it thus far. No significant health problems along the way; just a few scares that proved costly, but benign, because of physician over-protection, over-reaction, or liability phobia; i.e., its better to be safe, than sorry!.

Still, having some economic skin in the insurance game because of the high-deductible feature, makes one an informed consumer. It also provides a sense of empowerment which, while ultimately illusionary for mortals, does offer a bit of self-control. After all, while we can’t mitigate against drunk-drivers and catastrophic diseases, we can live a healthy lifestyle and pay out of pocket for true health “maintenance” … much as we self-pay to maintain our cars and homes, etc. We can do our best … and hope for the rest.

Of course, the savings portion [HSA] has always been a secondary after-thought relative to the actual re-insurance coverage terms, exclusions and conditions. I personally remain focused on the indemnity or PPO type with full coverage, no co-payments and few restrictions. After all, if I use up my high-deductible for an adverse health incident, I figure I have far more problems to worry about than economic. My health, well-being and probably life are significantly in peril.

Nevertheless, as a health economist, I have always appreciated the above market rates given to my cash HSA account; 5% to 4.0% historically; and now 2.5% even after the domestic implosion thru 2010. Compared to the paltry 0.19% in my FDIC protected Wachovia money market deposit account, or the 0.5% in my non-FDIC protected money market mutual fund [brokerage] account; this is a great deal. And, it is tax exempt.

Oh the Irony! 

So, it comes as some surprise that after more than a decade, and the recent health insurance reform political debacle, that there is a surge of interest in the HSA companion. This time however, interest comes not from the insured’s – but the insurers. And, not from the health insurance industry, but rather from the affiliated [and desperate] banking industry.

How so – and why?

Well, it now seems some insurance companies actually desire the business of folks like me who are willing to bear a higher deductible in return for lower premiums, or who are willing to research CPT® code prices and question the efficacy of the procedures they negotiate with physicians in a collaborative fashion; or who are willing to watch their weights and abstain from over-indulgences for their own good. How novel; and again, why?

It’s the HSA pot-o-gold; Duh!

The Proof

Below, is a copy of an email I personally received from eHealthInsurance soliciting my separate health savings account [HSA] business; not my health insurance coverage business:

Dear David,

Did you know that your health insurance plan can be complemented by a Health Savings Account (HSA)? If you haven’t opened an HSA yet, it’s not too late! An HSA allows you to:

  • Use funds to pay for copays, deductibles, prescription drugs, dental services, vision care and more
  • Save money by deducting 100% of your HSA contributions from your taxable income
  • Earn tax-free interest on the funds that accrue in your account over time
  • Grow your account from year to year – the money you contribute won’t expire; you can even use an HSA as a secondary retirement savings account

There are no penalties or taxes when you use your HSA funds to pay for qualified medical expenses. Take advantage of your health plan’s benefits and open an HSA today! eHealthInsurance has partnered with nationally recognized, highly-rated HSA banks to offer you industry leading choices:

  • The Bancorp Bank
  • HSA Bank
  • JPMorgan Chase Bank
  • OptumHealth Bank
  • Sovereign Bank
  • Wells Fargo Bank

We’re with you every step of the way

Our representatives are also available for online chat 24 hours day.

Gary Matalucci
Vice President of Customer Care

The Question Is?

Such the deal; NOT!

So, any thinking HDHP participant [like me] must logically ask why such “nationally recognized, highly-rated HSA banks” would offer above market rates during these times of essentially zero interest rate levels.  Why the interest at all? Are they trying to loose money; or are they just befriending me?

As tennis player John McEnroe might say: are you serious!

Assessment

Yes John, the high rates are a serious loss-leader for more expensive products.

These banks want to make money; not from the non-existent interest rate spread on your HSA cash, but by enticing us to place this growing cash horde into their “investment vehicles.”  In the recent past, some of us mortgaged our homes chasing the stock market or were goaded into flipping houses. And now, these same bankers are encouraging us to mortgage our health insurance on whatever high-priced, low-quality, fee-ridden, load bearing, snarky “investment vehicles” they can pawn off on us.

Of course, the health insurance companies get a fat sales commission or percentage cut, as well. A win-win situation for all but us – the insured.

Think AARP.

My Personal Advice

Do not do it. Do not take the bait.

The HSA portion of your HDHP is for paying premiums and future medical care in the event of a health catastrophe. It is for savings, not for investing in a risk-bearing vehicle. Far too many of us realized too late that a home is a place to live – not an investment. Likewise, a health savings account is for your health, and health insurance – not risky investing.

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Assessment

Well, that’s my opinion as a retired surgeon, former insurance agent and financial advisor.

Conclusion

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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com

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***

New Health Insurance Compliance Issues

Implications of US Patriot and Bank Secrecy Acts on Hospitals

By Dr. David E. Marcinko; MBA, CMP™

By Hope R. Hetico; RN, MHA, CMP™  dave-and-hope4

With the recent popularity and growth of personal health insurance plans (PHIPs), health savings accounts (HSAs) and / or medical savings accounts (MSAs), compliance with the USA PATRIOT Act has become an important issue for these new health insurance products.  

These insurance plans place financial services organizations into relationships with shared information institutions like hospitals, healthcare organizations, medical clinics and patient clients.

The Online Connection 

This happens because many, perhaps even the majority of health insurance plans are opened online as patients and insurance company clients use Internet search engines to find the “best” policy type to meet their needs.  

Appropriately, banks, healthcare entities, and hospitals are working with insurance companies, trust companies, banks and broker-dealers to offer identity-compliant and integrated insurance plan products. 

Verifications that these clients are who they say they are, is as paramount as monitoring their activity. 

Example:  

Section 314(b) of the US Patriot Act permits financial institutions and health insurance companies – upon providing notice to the United States Department of the Treasury – to share patient and related information with one another in order to identify and report to the federal government activities that may involve money laundering or terrorist activity.  

The US Patriot Act 

The US Patriot Act aims to partially accomplish this through three critical goals:  

  1. First, it gives investigators familiar tools to use against a new threat.
  2. Second, it breaks down a wall that has prevented information sharing between agencies.
  3. Third, it updates U.S. laws to respond to the current Internet environment.  

Bank Secrecy Act, PHIPs, MSAs and HSAs 

For additional compliance security, The USA Patriot Act also amended the Bank Secrecy Act [BSA] to give the federal government enhanced authority to identify, deter and punish money laundering and related terrorist financing activities.  

Assessment 

Whatever the financial outlays required for insurance/financial organizational compliance, it may result in very large savings later if affected hospital assets and patient health insurance information is safeguarded against attacks of virtual or real assets. 

Conclusion 

And so, what is your opinion on the above health law and policy? 

Institutional information: www.HealthcareFinancials.com 

Terminology: www.HealthDictionarySeries.com 

Related reference: Marc B. Royo and David B. Nash.Sarbanes-Oxley and Not-for-Profit Hospitals: Current Issues and Future Prospects.” American Journal of Medical Quality: Vol. 23, No. 1, 70-72, February 2008.

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