VEBA Administrators take note:

Section 9010 of the Patient Protection and Affordable Care Act (ACA) imposes a fee on each covered entity engaged in the business of providing health insurance for United States health risks.  The first fees are due September 30, 2014.  Importantly, VEBAs along with (self insured employers and certain non-profit corporations), are EXCLUDED from this fee. 

Accordingly, such fees should not be accounted for nor passed along to VEBA plan participants.

Retiree Committee Creates VEBA Trust

The Patriot Coal Retiree Committee represented the non-Union retirees in the Patriot Coal Chapter 11 bankruptcy case.  When Debtor Patriot Coal sought to terminate all retiree healthcare benefits, the Retiree Committee fought back.  As a result, a financial settlement was reached giving the Retiree Committee a lump sum settlement and certain monthly payments to be made by the Company through the lives of the affected retirees.

Since the retirees were a diverse group, it was decided that the monies should be used to set up a health reimbursement VEBA (HRA VEBA).  The Patriot Coal VEBA allows its members to submit any taxable contributions they make toward the payment of any healthcare premium payments for reimbursement.  Each Patriot Coal VEBA participant is allotted an amount for reimbursement that varies only with their Medicare status, with pre-Medicare retirees receiving about three (3) times as much as Medicare eligible retirees.

A unique cost-savings method has also been employed by the Patriot Coal VEBA Trust that encourages early use of the VEBA funds by its participants to minimize Third Party Administration (TPA) expenses.  In this respect, once a yearly allocation in an individual account has reached a zero balance, the TPA need not service the account for the remainder of the year and thus is able to stop charging for the administration of such accounts.  This will reduce the overhead and extent the amount of money to pay for benefits.

Private Exchanges May Be a Tool for VEBAs to Save Money

The Affordable Care Act was passed with an expectation of increasing access to health care. Employees or retirees obtaining health care benefits through a VEBA may not necessarily need additional access to health care but do have an interest in getting less expensive health insurance options.  VEBAs are typically fixed dollar arrangements, so less expensive coverage should extend the life of VEBAs.  Private exchanges may be a favorable option for a VEBA to consider.   

At a simple level, a private exchange as an online marketplace, much like internet shopping sites.  Private exchanges are created by private commercial parties such as insurance companies or third party administrators.  With a private exchange, a sponsor gives their employees or retirees a fixed amount of money allowing the participants to use the exchange to find tailored healthcare coverage that is best for them.

The jury may still be out on the long-term savings that may be achieved through private exchanges, but VEBA plans should be examining this relatively new option.     

HIPAA TRAINING IS MANDATORY FOR MOST VEBA FIDUCIARIES

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) provides federal protections for "individually identifiable health information" (i.e. plan participant information) held by health care plan providers (including VEBAs) and their business associates.  Among its many mandates,  HIPAA requires that health care plans (among other entities) may not use or disclose individuals’ health information for purposes unrelated to providing healthcare, managing their organization, or meeting their obligations under state and federal law, unless individuals specifically authorize them to do so. 

The Department of Health and Human Services (HHS) requires annual privacy and health information security training to ensure that HIPAA rules are being utilized and that the persons dealing with identifiable health information understand their duties.  While such training for health care administration companies (i.e. third party administrators), hospitals, physician offices and medical laboratories is regularly provided to their employees, many VEBA fiduciaries and/or Board Members are unaware that this mandatory training applies to them as well. 

 

Many VEBAs have been created in the context of Chapter 11 bankruptcy cases, usually one of the last important steps to be taken by an official Retiree Committee.  These VEBAs typically offer some sort of healthcare plan, and are considered "covered entities" -- subject to ERISA and HIPPA regulations.  Usually, a group of volunteer retirees will serve as the VEBA fiduciaries (usually as a Board), while the day-to-day operations are handled by a third party administrator.  Often, VEBA  Board Members handle and/or are provided with information relating to VEBA plan participants in the context of appeals, unsolicited correspondence from plan members, or reports provided by third party administrators.  Such information often contains "individually identifiable health information" (as defined in HIPAA).  As such, any Board Member or similar fiduciary of a VEBA must receive annual privacy and health information security training. 

 

Training for VEBA Board members may be overlooked, but with disastrous potential results and potential liability.  By way of example only, imagine that a Board Member of a VEBA has a laptop computer stolen that contains information about hundreds or thousands of VEBA plan participants. Alternatively, perhaps a Board Member merely has a computer virus that results in the sending out of plan participant information to third parties?

 

In short, VEBA Board Members need HIPAA privacy training.  There needs to be a Security Officer appointed on each Board.  Board Members need training on how to identify plan participant information and to learn how such information can be properly used and safely discarded (i.e. shredding or deleting files), email addresses used by Board Members should not be accessible by other family members, and documentation should be maintained reflecting the HIPAA training obtained by each VEBA Board Member. 

 

Even when proper precautions are taken, there may be an incident (large or small) of a HIPAA violation.  Impacted plan participants must be notified and remedial actions must be taken to address the source of the problem.  Importantly, however, liability of a Plan and/or Board Members can be avoided if proper training was in place--despite an unintentional disclosure.  By the same token, a failure to have HIPAA training can lead to liability and increased penalties. 

 

There are many HIPAA training options available through inexpensive on-line training courses.  Such on-line courses, however, tend to be fairly generic and are rarely tailored for VEBAs or VEBA fiduciaries.  Accordingly, this author suggests consulting with an attorney to obtain the right level and type of HIPAA training appropriate for those administering a VEBA. 

New Proposed IRS Rules Regarding UBTI (unrelated business taxable income) under IRC section 501(c)(9) with respect to VEBAs

The Department of Treasury has a proposed regulation providing guidance on how certain organizations (like VEBAs) that provide employee benefits must calculate UBTI.  Previously proposed rules on this topic (published on 2/4/86) have also been withdrawn.  As reflected in a footnote in the Proposed Rule, the IRS has distinguished and may no longer follow the UBTI calculation method reflected in the Sixth Circuit Court of Appeals decision, Sherwin-Williams v. Commissioner. 

 

My First VEBA Blog Entry

This is my first Blog entry.  I am a lawyer at Stahl Cowen Crowley AddisLLC, where I have (in part) represented many Retiree Committee's in Chapter 11 bankruptcies.  I drafted my first Voluntary Employee Beneficiary Association (VEBA) trust agreement in 2005 for the Dana Non-Union Retiree Committee to help the Retiree Committee provide replacement healthcare insurance plans for the plans terminated in the Chapter 11 case.   Since that time, I have been creating various types of VEBAs for other Retiree Committee and even for employers.   

VEBA popularity is spiking now as the economics of providing healthcare benefits to employees and retirees has become increasingly more expensive.  VEBAs are also being used in new ways to address growing trends in the healthcare marketplace. VEBAs can also allow companies to move their longterm  healthcare benefit obligations off their balance sheets while maintaining the benefits to employees and retirees.  OF course too, VEBAs remain crucial tools in Chapter 11 bankruptcies. 

VEBAs are considered welfare plans and are subject to ERISA (and HIPAA) compliance, they require fiduciary oversight, yearly audits and particular IRS filings and reporting to members.  This VEBA Blog will track new and interesting developments in the law relating to VEBAs, give attention to new VEBAs set up in Chapter 11 bankruptcy proceedings (by Retiree Committees), give recognition to entities that are advancing the use of VEBAs, and provide other news that may be of interest to those exploring VEBAs or merely seeking to stay on top of existing VEBAs.