The VEBA Plan
Voluntary Employees’ Beneficiary Association Trust
Minnesota Service Cooperatives
April 2008
What is the VEBA Plan?
A type of welfare benefit plan providing for individual, employer-funded
accounts that may be used to reimburse participants for medical care
expenses.
VEBA TRUST
Funds available
during employment
Post-retirement
savings plan
VEBA Plan Trustee
A trustee is required for the Employer Benefits Trust Agreement. The
trustee is typically a bank or financial institution.
VEBA Plan administrator
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It is most beneficial if the administrator of the health plan and the
VEBA account can work simultaneously with an automatic
crossover feature. This makes the process seamless for the
employee.
The VEBA Plan administrator will provide the following:
• Process enrollment
• Collect contributions
• Process claims/issue reimbursements
• Screen for 213(d) eligible expenses
• Provide customer service
Why the VEBA Plan?
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Rising costs of medical premiums
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Plan design engages member in health care decisions
Members (group purchasers and employees) demanding
a greater choice in health care options
Why the VEBA Plan?
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Plan keeps pace with medical inflation
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Increases family participation
VEBA Plan encourages employees to move to
a high-deductible health plan (HDHP)
Why the VEBA Plan?
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Reduce unnecessary utilization
Provide options for all employees
Provides retirement savings plan
Investment account options
The VEBA Plan
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The VEBA Plan allows employees to use individual accounts to
save for medical expenses.
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The accounts are funded entirely with employer contributions.
Employees may use funds to pay for eligible medical, dental and
insurance premiums.
The VEBA Plan
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Account balances may be rolled over from year to year –
no use it or lose it.
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Account balances may accumulate over time, which will permit
employees to save for health expenses in retirement.
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Non-qualified distributions are not permitted.
Eligible participation
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Participation in the VEBA Plan is limited to public employers.
Participation in the VEBA Plan will be determined pursuant to
collective bargaining agreements and personnel policies of
participating employers.
Eligible participation
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Though one HDHP option is recommended, two or three plan
choices are allowed (if required group size is met) for the VEBA
Plan for active employees. Bargaining units may move to the new
plan upon completing negotiations. Migration over multiple years
is allowable.
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Contributions under the VEBA may be limited to participants who
elect coverage under the HDHP.
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Individual employees may not opt in or out of the VEBA Plan.
Eligibility is determined by a collective bargaining agreement or
personnel policies for class of employees.
Funding the VEBA Plan
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The account is funded with employer contributions pursuant to
collective bargaining agreements or personnel policies.
• Contributions may vary by bargaining unit
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At retirement, the VEBA Plan account may also be funded with all
or a portion of sick, vacation and severance pay, if provided for in
the collective bargaining agreement or personnel policy.
Funding the VEBA Plan
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There is no annual or lifetime contribution limit.
Employees may not contribute to the VEBA Plan.
Eligible VEBA Plan expenses
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All eligible health care expenses
Section 213(d) of the Internal Revenue Code
Dental and vision care
Insurance premiums
• Continuation
• Medicare Supplement
• Individual
Eligible VEBA Plan expenses
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An employee who terminates employment and is covered under
a VEBA Plan may draw down the balance of the account for
reimbursement of eligible medical expenses, including:
• Individual health care premiums
• Dental and vision care
• Continuation
• Medicare Supplement premiums
Ineligible VEBA Plan expenses
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Cosmetic surgery
Electrolysis
Health club dues
Teeth bleaching
And more — refer to the IRS list
IRS Regulations
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Unused monies carry over from year to year
Withdrawals only for qualified expenses
Employer contributions are subject to non-discrimination rules
under Section 105 of the tax code. However, there is no dollar
limit or ceiling.
IRS Regulations
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“Cash out” not allowed:
• Upon participant’s death, the account balance is available
to reimburse medical expenses of surviving spouse and
tax-eligible dependents.
• After the participant’s death, the beneficiary may be
reimbursed (tax-free) for medical expenses.
• The value of this benefit is taxable to the participant
(now deceased).
• Taxes are withheld and paid from the account.
Selling points & advantages — employer
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The VEBA Plan trust is irrevocable
FICA savings on contributions
Employer contributions are excluded from employee taxable
income
One plan, reduced administration cost for those groups with
total replacement
Selling points & advantages — employer
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Elimination of anti-selection for total replacement groups
Annual indexing of deductible and out-of-pocket limits will keep
pace with inflation
Provide employers with a solution to balance costs with
expectations
Allow members to use discretionary dollars for services that are
most important to them
Selling points & advantages — employee
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The VEBA Plan provides robust investment options
Rollover of unused dollars from year to year
Tax-exempt withdrawals for qualified medical expenses not
covered by the plan for Section 213(d) expenses
Tax-exempt withdrawals to pay insurance premiums such as
continuation, individual and Medicare Supplement
Selling points & advantages — employee
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Automatic crossover feature
Member control of dollars, discretionary savings fund,
first-dollar interest
Interest and earnings grow tax-free
Member choice of available services
Distributions to participants for medical expenses are
excluded from gross income
No “use-it-or-lose-it” provision
Blue Cross and Blue Shield of Minnesota
member support services
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24-hour nurse advice line
Mail order pharmacy benefit
Complementary care provider network
Discounts on herbal supplements and vitamins
Member support tools
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myBlueCross online member center at
www.bluecrossmn.com/mnservcoop
• Receive e-mails and letters specific to health concerns
of interest
• Research health conditions
• Health assessment and online coaching modules
• Calculators for weight and body fat management
• Appointment reminders
• Quizzes, polls and on-line shopping
• Tobacco reduction program
Member support tools
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Prescription drug cost calculator
Physician and hospital cost and quality data
E-mail questions to customer service
Link to SelectAccountSM to check account transactions and balances
Investment education
MII Life Inc., d.b.a. SelectAccount, an independent company providing account administration services
VEBA Plan options
Plan options
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Minnesota Provider Network
Deductibles range from $600 to $2,600 per person and
$1,200 to $5,200 per family
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In-network coinsurance ranges from 0 to 30 percent
All plans include a preventive care benefit
Plan options
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$5 million lifetime maximum
Calendar-year or plan-year deductible
Automatic crossover feature for health care and pharmacy expenses
What are the plan options?
VEBA 100 Plans
Plan Number
Calendar-year accum: 830
Plan-year accum: 834
Calendar-year accum: 831
Plan-year accum: 835
Calendar-year accum: 832
Plan-year accum: 836
Calendar-year accum: 833
Plan-year accum: 837
Network
MN Provider
Network
Out-of-Network
MN Provider
Network
Out-ofNetwork
MN Provider
Network
Out-ofNetwork
MN Provider
Network
Out-ofNetwork
Preventive Care
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
Deductible
Coinsurance
(after ded.)
Out of Pocket
Maximum
Lifetime Max
$1200 Single/$2400 Family
$1850 Single/$3700 Family
$2250 Single/$4500 Family
$2600 Single/$5200 Family
100%
80%
100%
80%
100%
80%
100%
80%
$1200 Single $2400
Family
$3500 Single
$6500 Family
$1850 Single
$3700 Family
$3500 Single
$6500 Family
$2250 Single
$4500 Family
$3500 Single
$6500 Family
$2600 Single
$5200 Family
$3500 Single
$6500 Family
$5,000,000
$5,000,000
$5,000,000
$5,000,000
VEBA 80 Plans
Plan Number
Calendar-year accum: 821
Plan-year accum: 824
Calendar-year accum: 822
Plan-year accum: 825
Calendar-year accum: 823
Plan-year accum: 826
Network
MN Provider
Network
Out-ofNetwork
MN Provider
Network
Out-ofNetwork
MN Provider
Network
Out-ofNetwork
Preventive Care
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
Deductible
Coinsurance
(after ded.)
Out of Pocket
Maximum
Lifetime Max
$1850 Single/$3700 Family
80%
60%
$2250 Single/$4500 Family
80%
60%
$2600 Single/$5200 Family
80%
60%
$3500Single/$6500 Family
$3500 Single/$6500 Family
$3500 Single/$6500 Family
$5,000,000
$5,000,000
$5,000,000
* This is only a very general outline of plan benefits. The Summary Plan Description includes complete details of what is and is not covered.
** This chart reflects 2008 benefits. Deductible amounts and out-of-pocket maximums may increase annually to keep pace with inflation.
NOTE: There are two alternative prescription drug benefit designs below, available for integration into each of the above plans. Inclusion of either plan B or C below will
NOT allow automatic claims reimbursement (i.e. “crossover”) with respect to prescription drug benefits. Please discuss these drug plans with your representative.
•Plan B – Greater of a $14 or 25% copay up to a $750 individual/$1,000 family out-of-pocket.
•Plan C – 25% coinsurance up to a $750 individual/$1,000 family out-of-pocket.
What are the plan options?
VEBA 70 Plans
Plan Number
Calendar-year accum: 840
Plan-year accum 827
Calendar-year accum: 820
Plan-year accum: 828
Network
MN Provider
Network
Out-ofNetwork
MN Provider
Network
Out-ofNetwork
Preventive Care
100%
Deductible/
Coinsurance
100%
Deductible/
Coinsurance
Deductible
Coinsurance
(after ded.)
$600 Single/$1200 Family
70%
60%
$1200 Single/$2400 Family
70%
60%
Out of Pocket
Maximum
$2100 Single/$4200 Family
$3500 Single/$6500 Family
Lifetime Max
$5,000,000
$5,000,000
* This is only a very general outline of plan benefits. The Summary Plan Description includes complete details of what is and is not covered.
** This chart reflects 2008 benefits. Deductible amounts and out-of-pocket maximums may increase annually to keep pace with inflation.
NOTE: There are two alternative prescription drug benefit designs below, available for integration into each of the above plans. Inclusion of either plan B or C below will
NOT allow automatic claims reimbursement (i.e. “crossover”) with respect to prescription drug benefits. Please discuss these drug plans with your representative.
•Plan B – Greater of a $14 or 25% copay up to a $750 individual/$1,000 family out-of-pocket.
•Plan C – 25% coinsurance up to a $750 individual/$1,000 family out-of-pocket.
Employer contribution strategy
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Percent of premium for single and family is most advantageous
Full single and partial family premium contribution does not fund
family VEBA adequately
Appropriate funding is key
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80/20 rule; typically 20 percent of members incur 80 percent of
claims
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Employer contributions to the VEBA need to encourage
family participation
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Multiple plan offerings is not recommended – eliminates
anti-selection and underfunding of the plan.
Recommended rules
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One plan offering per group
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All eligible employees must enroll unless they have an eligible
waiver for other group coverage
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Deductible and out-of-pocket levels will increase annually to keep
pace with inflation
No cash in lieu of plan
Employer contribution will remain as negotiated
VEBA multiple option
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VEBA will be most successful on a total replacement basis
Total replacement lessens the opportunity for anti-selection
Simplifies enrollment
No discrimination concerns
VEBA multiple option
The number of options allowed by group size are as follows:
• 2-14
One benefit plan offering
• 15-50
May have up to two benefit plan offerings –
minimum of five contracts in each benefit plan
• 51-99
May have up to two benefit plan offerings –
minimum of ten contracts in each benefit plan
• 100+
May have up to three benefit plan offerings –
minimum of 10 contracts in each benefit plan
Conclusion
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The VEBA Plan can provide a variety of benefits, including life and
death benefits, sickness, accident and other benefits related to the
welfare of employees, their dependents and beneficiaries. Benefit
payments are not based on the passage of time, but rather are
triggered by a specific event.
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The VEBA Plan is a way to reduce tax liability, provide employee
benefits and protect assets from personal and business creditors.
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The VEBA Plan can engage the member in making informed health
care decisions.
Conclusion
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Raise awareness of the cost of services versus the benefit value.
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Provide employers with a solution to balance costs with
expectations.
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Allow members to use discretionary dollars for services that
are most important to them.
Allow physician choice and strengthen the patient/physician
relationship.
Towers Perrin overview
The proposed VEBA Plans:
• May help keep pace with inflation
• Provide incentives for unions to move to plans with more
cost sharing
• Provide a viable option for all bargaining units
• Increase family participation
• Reduce unnecessary utilization
• Reduce the level of future premium increases for total
replacement groups
The above can only be accomplished if the rules are followed.
VEBA active & retiree
trust administrator:
SelectAccount
SelectAccount
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Introduction
What it means to be an administrator
• Process enrollment
• Collect contributions
• Process claims/issue reimbursements
• Screen for 213(d) eligibility
• Customer service
• Reporting
• Employee welcome kit
• Quarterly statement
• Explanation of claims payment
SelectAccount administrator advantages
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Claim processing
Daily processing
Pending claims
SelectAccount administrator advantages
24/7 access to your account
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www.selectaccount.com/veba
• Access to forms
• Access to individual account status
• Access to investment account information and setup
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IVR – Interactive Voice Response system
• Access to account information
SelectAccount administrator advantages
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Direct deposit option
Seamless claim payment from the account: Crossover option
• Medical
• Pharmacy
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One of the top 10 account administrators in the nation
• Over $108 million in deposits and mutual fund assets
under management
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Excellent customer service for groups and members
High-rated investment options: 15 mutual funds selected by
Devenir Investment Advisors LLC
Medical claims processing
(with crossover)
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Eligible expenses are applied to the deductible
• 213(d) eligible expenses are covered
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If crossover is elected, claims are automatically forwarded to
SelectAccount for reimbursement
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VEBA dollars are paid to the member
Member reimburses the provider
VEBA and FSA
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SelectAccount can administer both VEBA and flexible spending
accounts (FSAs)
• FSA is primary
• Single election for crossover
SelectAccount fees
MII Pricing
1Basic
Investment Account – Account invested in a diversified family of 15 mutual funds selected for SelectAccount by Devenir Investment Advisors LLC.
2Base
Balance Funds – this refers to the dollars in the VEBA account. Participants must maintain a minimum balance of $1,000 in the Base Balance in
order to direct money to the Basic Investment account.
3Basic
Investment Account Service Fee – This fee will be deducted from the participant’s Basic Investment Account balance. Zero balance investment
accounts will not be charged a fee.
4Account
Crediting Rates – The interest crediting rate is subject to change at any time without notice.
Questions
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For questions regarding the health plan call your local Service
Cooperative or your Blue Cross and Blue Shield of Minnesota
sales representative.
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For questions regarding the trust account for the VEBA:
Call SelectAccount at (651) 662-5065
or 1-800-859-2144
Monday through Friday, 7 a.m. to 7 p.m.