An Innovative Approach to Health Care

From Bloomberg.com: “Peabody Pays Mayo Clinic Prices to Save on Health-Care Costs.” Excerpt:

Ferguson’s wife, Shanna, had her colon removed last year because of chronic inflammatory disease. Foundation sent her 700 miles away to the top-ranked Mayo Clinic in Rochester, Minnesota. The company covered the $85,000 bill for the operation and follow-up reconstructive surgery and even paid for Ken’s motel.

“I was at the best place with the best doctors possible,” said Shanna, 50. “And we saved money.”

So did Foundation. The coal producer says it has found an unconventional way to cut health costs: Seek out the nation’s best care and give workers incentives to use it. About two-thirds of operations have proven to be cheaper at better-rated hospitals out of state. Even when the price was higher, the Linthicum Heights, Maryland-based company saved money by reducing misdiagnoses, complications and repeat procedures.

Foundation’s experiment in Wyoming could be a model for politicians and insurers seeking to curb the growth in U.S. health-care spending, now $2.2 trillion a year, said Mark McClellan, who served under President George W. Bush as head of Medicare and the Food and Drug Administration.

More on this approach from the Connecticut Employment Law Blog here. See also this link to a book by Michael E. Porter & Elizabeth Olmsted Teisberg entitled “Redefining Health Care” which discusses the approach.

Federal Circuit Overrules Tax Strategy Patent Linchpin

From the Tax Prof:

The Federal Circuit today issued its long awaited decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008), rejecting the patentability test (State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998)) which was the linchpin in the spate of tax strategy patents issued recently. . .

There has been a lot written about whether strategies could be patented in the ERISA arena. Those who are interested in this topic will want to take note.

Knowledge Poll About SPDs

The HR Lady (sorry, I just can’t bring myself to call her “evil” as the name of her blog indicates) has an interesting poll going on at her sight: “I am an HR Professional and I know what a ‘Summary Plan Description’ is. . .”

It will be interesting to find out the results of this. If they aren’t good, I guess we’re in trouble.

(For those who might not be benefits or ERISA savvy, you can go here or here for the answer.)

FASB Increasing Pension Disclosure Requirements

According to this press release here, the Financial Accounting Standards Board has mandated that employers provide extensive information about the fair value of assets in pension plans, counter to a staff recommendation and over the objections of Chairman Robert Herz and member Leslie Seidman. See this FASB Summary of Board Decisions here.

The board decided Wednesday that the final staff position will be effective for fiscal years ending after Dec. 15, 2009, one year later than originally envisioned, with early application permitted.

See also these Handouts which were used in the meeting here.

Another Interview with Professor Ghilarducci

From Mark Levin here. (Another great interview that exposes the truth about the universal pension proposal under serious consideration by House Democrats. See previous posts here and earlier interview here by Kirby Wilbur.)

Phillies Win the World Series!!!

Fightin’ Phils are World Series Champions

More here.

Massachusetts Independent Contractor Law

This article from McDermott Will & Emery–“For Massachusetts Employers: Distinguishing Between Independent Contractors and Employees“–discusses an Advisory issued by the Attorney General’s Fair Labor Division last May in connection with Massachusetts’ Independent Contractor Law. While the whole article is worth reading, here is an important excerpt:

The penalties for misclassifying an employee as an independent contractor can be very steep, and can include both civil and criminal penalties. For example, a willful misclassification is punishable under the law by a fine of up to $25,000 or up to one year in jail. Even a mistaken misclassification can result in a penalty of up to $10,000 or six months in jail for the first offense. Moreover, when an employer misclassifies an employee as an independent contractor, it also violates other Massachusetts and federal statutes, such as those that govern minimum wage and overtime, employer recordkeeping requirements, income tax withholding and workers’ compensation insurance. . .

Misclassifying employees as independent contractors under Massachusetts law could have federal law consequences as well. The attorney general’s office has indicated that, because employers do not pay taxes for independent contractors as they do for employees, it communicates the findings from its independent contractor investigations to the Internal Revenue Service (IRS). While the test for independent contractors in Massachusetts is not the same as the 20 Factor Test used by the IRS, information that an employer is misclassifying employees under the Massachusetts statute could prompt an independent investigation by the IRS that could have devastating financial consequences. For example, the IRS recently fined a large U.S. courier and freight company $319 million dollars for misclassifying employees as independent contractors.

As the article aptly points out, employers sometimes consider reclassifying employees when thinking about ways to cut costs in economic downturns. To read about the perils of such actions (other than the ones discussed above in Massachusetts), you can access previous posts here.

Family's 401(k) Is Herd Of Alpacas

Well, I guess if the 401(k) retirement system is eliminated, one can always raise a herd of alpacas.

Am 570 KVI in Seattle Interviews Professor Ghilarducci and more. . .

You can access a radio interview here conducted by Kirby Wilbur with Professor Teresa Ghilarducci in which she states that the goal behind her plan to “restructure” the 401(k) is “spreading the wealth.” Professor Ghilarducci has authored the plan which is currently under serious consideration by House Democrats. Excerpt from the interview:

GHILARDUCCI: Whatever you have in your 401(k) now will keep its tax break. So everybody who has their 401(k) plan will be grandfathered in. But what I proposed, instead of getting a tax deduction — like a decrease in your taxes by whatever your tax rate is, so if you’re at the very high income, your tax rate is 39%, and if you’re at the very low, you’re at 15%, and 40 million people make so little they don’t pay any taxes at all. Instead of the deduction coming from your tax rate, so whatever you put in your 401(k), like a dollar, let’s say, or a hundred dollars, you get back 39 cents, or $39, if you’re the high rate; 15 dollars, or 15 cents if you’re at the low rate, or nothing if you’re at the low rate. I proposed that we just transfer the deduction to a credit so that everybody gets $600. So I’m not taking away the tax break. I’m actually, um, giving everybody a flat amount so that it’s more equal.

WILBUR: Okay, 3%, okay, plus inflation.

GHILARDUCCI: Yes.

WILBUR: So the bonds would be adjusted. As I understand the $600 would be adjusted as well, right?

GHILARDUCCI: It would. It would.

WILBUR: Okay.

GHILARDUCCI: And what’s amazing about this is that it’s actually, um, doesn’t cost the government anything. I’m just rearranging the tax breaks that are available now for 401(k)s and spreading — spreading the wealth.

(Don’t miss Mr. Wilbur’s comments about the interview after it is over.)

Read more about the universal pension movement in previous posts here.

See also Nevin Adam’s eloquent thoughts on the whole movement in this opinion piece: “IMHO: The Pit and the Pendulum.” Excerpt:

It doesn’t take much imagination to see where this kind of approach would take us. IMHO, it’s, at best, just a sneaky way to raise the Social Security tax from 12.7% of wages to 17.7% (and that’s not even counting the cost of the $600/worker the federal government would toss in). And that for an account that you couldn’t tap in a financial emergency, or leave to a spouse or children—because, despite the nomenclature, it wouldn’t be an “account” at all. On the other hand, you’d no longer have to worry about that saving for retirement plan—you’d just have to worry what new plans politicians might develop for your retirement “savings” (in her book, Gilharducci says that the financial risks are “borne by the government, not by the worker”—as though the government has a funding system independent of those workers).

Now, as I said before, these are difficult, extraordinary, even unprecedented times—and we find ourselves dealing with them smack dab in the middle of an election year. It is a time that cries out for bold action—and yet it is a time when even those with the best of intentions can do great harm.

The pendulum does, after all, swing back and forth. But if, god forbid, those pendulum swings wipe out the 401(k)—well, IMHO, that would really be the pits.

Lessons from the Orth Case

There are some really great lessons for all from the District Court and the Circuit Court opinions in the Orth v. Wisconsin State Employees Union Council 24, et al. case discussed in this previous post here (in case you missed it):

(1) Statements in collective bargaining agreements can give rise to unintended ERISA plans. The district court opinion includes a discussion of this issue:

An ERISA “plan” is not an entity or a piece of paper, but a more inchoate group of rights, benefits and procedures (literally, a “plan”) set up by an employer to create pension or welfare benefits. See Pegram v. Herdrich, 530 U.S. 211, 223, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (noting that a plan is merely a “scheme decided upon in advance” for the provision of benefits). The plan may be evidenced by a summary plan description (SPD) and any other documents, such as a CBA, that describe the rights of beneficiaries or such things as how the plan is administered, how premiums are collected, etc. In other words, the fact that the plaintiff’s dispute may arise solely from a clause in a collective bargaining agreement does not mean that the dispute does not also implicate the terms of an ERISA plan. In fact, hybrid ERISA/LMRA claims are commonly asserted, even when the dispute is resolved by reference to a CBA rather than merely a plan–specific document.

(Read about another interesting case here which held that a merger agreement acted as a plan amendment to an ERISA retiree medical plan.)

(2) The clause that states “[p]ayment of premiums will be on the same basis as the benefit is currently paid for employees” or similar language occurs often in retiree medical plan language and should be promptly reviewed and revised, if necessary. Many times this language occurs in benefits booklets or SPDs prepared by insurance providers. Normally, such language is meant to portray exactly what the defendant’s lawyers tried to argue in the case:

The defendant also suggests patent ambiguity because the clause refers to both benefits and premiums: “Payment of premiums will be on the same basis as the benefit is currently paid for employees.” In the defendant’s reading, this means only that retirees will receive the same level of benefits as active employees–not that they will have their premiums paid at the same level.

However, with judges reading such language to mean that the employer, by making that statement, is committing to the same level of premiums for retirees as it has for active employees, employers should make sure that they review such language and clarify it to say exactly what they mean. Such language can be revised to make it more clear, but if the language is in a benefits booklet or SPD prepared by an insurance company, you may have more of a challenge getting it revised.

(3) These types of programs should be clearly communicated to active employees and retirees. When changes are made, those changes should also be communicated. One of the things that was sadly absent from the facts of the case, from an employer’s standpoint as well as the employee’s standpoint, was the communication aspect. Excerpt from the district court opinion:

WSEU is a small organization with little experience providing retirement benefits, and thus the issue only emerged from under the radar after Orth, who had no doubt thought he was set for life, found himself with no benefits. Rather than establishing some sort of clear understanding between the employees’ union and the WSEU, the evidence only shows that the parties were not fully cognizant of what the CBA actually provided.

(Judge Posner authored the Orth opinion. You can access a number of links here at Benefitsblog which reference Judge Posner’s court opinions impacting the benefits world.)