The VEBA Plan

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The VEBA Plan Voluntary Employees Beneficiary
Association Trust Minnesota Service
Cooperatives April 2008
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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-retirementsavings plan
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VEBA Plan Trustee

• A trustee is required for the Employer Benefits
  Trust Agreement. The trustee is typically a bank
  or financial institution.

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VEBA Plan administrator

• 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

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Why the VEBA Plan?

• Rising costs of medical premiums
• Members (group purchasers and employees)
  demanding a greater choice in health care
  options
• Plan design engages member in health care
  decisions

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Why the VEBA Plan?

• Plan keeps pace with medical inflation
• VEBA Plan encourages employees to move to a
  high-deductible health plan (HDHP)
• Increases family participation

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Why the VEBA Plan?

• Reduce unnecessary utilization
• Provide options for all employees
• Provides retirement savings plan
• Investment account options

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The VEBA Plan

• The VEBA Plan allows employees to use individual
  accounts to save for medical expenses.
• The accounts are funded entirely with employer
  contributions.
• Employees may use funds to pay for eligible
  medical, dental and insurance premiums.

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The VEBA Plan

• Account balances may be rolled over from year to
  year no use it or lose it.
• Account balances may accumulate over time, which
  will permit employees to save for health expenses
  in retirement.
• Non-qualified distributions are not permitted.

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Eligible participation

• 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.

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Eligible participation

• 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.
• Contributions under the VEBA may be limited to
  participants who elect coverage under the HDHP.
• 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.

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Funding the VEBA Plan

• The account is funded with employer contributions
  pursuant to collective bargaining agreements or
  personnel policies.
• Contributions may vary by bargaining unit
• 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.

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Funding the VEBA Plan

• There is no annual or lifetime contribution
  limit.
• Employees may not contribute to the VEBA Plan.

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Eligible VEBA Plan expenses

• All eligible health care expenses
• Section 213(d) of the Internal Revenue Code
• Dental and vision care
• Insurance premiums
• Continuation
• Medicare Supplement
• Individual

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Eligible VEBA Plan expenses

• 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

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Ineligible VEBA Plan expenses

• Cosmetic surgery
• Electrolysis
• Health club dues
• Teeth bleaching
• And more refer to the IRS list

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IRS Regulations

• 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.

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IRS Regulations

• Cash out not allowed
• Upon participants death, the account balance is
  available to reimburse medical expenses of
  surviving spouse and tax-eligible dependents.
• After the participants 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.

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Selling points advantages employer

• 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 withtotal replacement

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Selling points advantages employer

• 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

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Selling points advantages employee

• 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

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Selling points advantages employee

• 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 areexcluded from gross income
• No use-it-or-lose-it provision

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Blue Cross and Blue Shield of Minnesota member
support services

• 24-hour nurse advice line
• Mail order pharmacy benefit
• Complementary care provider network
• Discounts on herbal supplements and vitamins

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Member support tools

• 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

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Member support tools

• 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

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VEBA Plan options
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Plan options

• Minnesota Provider Network
• Deductibles range from 600 to 2,600 per person
  and1,200 to 5,200 per family
• In-network coinsurance ranges from 0 to 30
  percent
• All plans include a preventive care benefit

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Plan options

• 5 million lifetime maximum
• Calendar-year or plan-year deductible
• Automatic crossover feature for health care and
  pharmacy expenses

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What are the plan options?
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.
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What are the plan options?
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.
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Employer contribution strategy

• Percent of premium for single and family is most
  advantageous
• Full single and partial family premium
  contribution does not fund family VEBA adequately

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Appropriate funding is key

• 80/20 rule typically 20 percent of members incur
  80 percent of claims
• Employer contributions to the VEBA need to
  encouragefamily participation
• Multiple plan offerings is not recommended
  eliminatesanti-selection and underfunding of the
  plan.

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Recommended rules

• One plan offering per group
• No cash in lieu of plan
• Employer contribution will remain as negotiated
• All eligible employees must enroll unless they
  have an eligible waiver for other group coverage
• Deductible and out-of-pocket levels will increase
  annually to keep pace with inflation

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VEBA multiple option

• VEBA will be most successful on a total
  replacement basis
• Total replacement lessens the opportunity for
  anti-selection
• Simplifies enrollment
• No discrimination concerns

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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

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Conclusion

• 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.
• The VEBA Plan is a way to reduce tax liability,
  provide employee benefits and protect assets from
  personal and business creditors.
• The VEBA Plan can engage the member in making
  informed health care decisions.

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Conclusion

• Raise awareness of the cost of services versus
  the benefit value.
• Allow physician choice and strengthen the
  patient/physician relationship.
• Provide employers with a solution to balance
  costs with expectations.
• Allow members to use discretionary dollars for
  services thatare most important to them.

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Towers Perrin overview

• The proposed VEBA Plans
• May help keep pace with inflation
• Provide incentives for unions to move to plans
  with morecost 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.

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VEBA active retiree trust administrator
SelectAccount
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SelectAccount

• 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

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SelectAccount administrator advantages

• Claim processing
• Daily processing
• Pending claims

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SelectAccount administrator advantages

• 24/7 access to your account
• www.selectaccount.com/veba
• Access to forms
• Access to individual account status
• Access to investment account information and
  setup
• IVR Interactive Voice Response system
• Access to account information

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SelectAccount administrator advantages

• Direct deposit option
• Seamless claim payment from the account
  Crossover option
• Medical
• Pharmacy
• One of the top 10 account administrators in the
  nation
• Over 108 million in deposits and mutual fund
  assets under management
• Excellent customer service for groups and members
• High-rated investment options 15 mutual funds
  selected by Devenir Investment Advisors LLC

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Medical claims processing(with crossover)

• Eligible expenses are applied to the deductible
• 213(d) eligible expenses are covered
• If crossover is elected, claims are automatically
  forwarded to SelectAccount for reimbursement
• VEBA dollars are paid to the member
• Member reimburses the provider

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VEBA and FSA

• SelectAccount can administer both VEBA and
  flexible spending accounts (FSAs)
• FSA is primary
• Single election for crossover

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MII Pricing
SelectAccount fees
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
participants 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.
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Questions

• For questions regarding the health plan call your
  local Service Cooperative or your Blue Cross and
  Blue Shield of Minnesota sales representative.
• For questions regarding the trust account for the
  VEBA
• Call SelectAccount at [phone] or
  1-800-859-2144
• Monday through Friday, 7 a.m. to 7 p.m.