News & Trends

Coleman-Stephens v. Commissioner of Internal Revenue tax court okays depression exemption; insurance scams; 2003 Hay Benefits Report tracking the health care cost shift




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A North Carolina tax court has ruled that ongoing depression qualifies as a disability exemption when it comes to qualified retirement plans. Normally, individuals are hit with a 10 percent penalty for taking retirement distributions before age 59 1/2 unless a statutory exemption such as a disability prevents their engaging in substantial gainful activity.

In the case of Coleman-Stephens v. Commissioner of Internal Revenue, a U.S. Postal worker suffered from continuing depression and was even hospitalized on two occasions as a result. She was unable to repay a retirement plan loan, and the plan reported the balance and interest as a taxable distribution. She reported the distribution on her income taxes, but did not pay the 10 percent early distribution penalty, citing her disability.

Being unable to work during the year of the distribution, and not having returned to work by trial time, Coleman-Stephens was declared disabled by the court and therefore exempt from the fine.

Over 300 million people worldwide are at risk of developing diabetes, says a new report at the recent International Diabetes Federation conference. The experts say that employers who implement diabetes disease management programs can see a 60 percent drop in chronic care costs after just one year.


Since 2001, health insurance scams have left nearly 100,000 people without coverage and holding roughly $85 million in unpaid medical bills, according to a new report from the Commonwealth Fund.

Rising health premiums and an increase in the uninsured have spawned a new generation of unauthorized and illegal health insurance plans that collect premiums from enrollees and then fail to pay providers. The most common scams involve phony unions, employee leasing firms, association health plans and discount plans.

The report recommends a number of steps to halt the spread, including:

  • Informing small businesses about phony health plans through well-funded state and federal consumer education campaigns
  • Expanding access to coverage in order to reduce a need for affordable insurance that phony plans thrive in
  • Clarifying the federal ERISA statute that governs employee benefits regulation so states can stop phony operatives who hide behind ERISA exemptions

Employers and individuals can also stay alert by calling their state insurance department, making sure to know the exact name and address of the company in question. Some of these scammers may even fake documents using a licensed insurer’s letterhead, implying that the health plan’s being offered by the licensed insurer. A quick call to the insurer can verify if it is indeed offering such coverage. Two calls may seem like a bit of an inconvenience, but the alternative is far worse.

Only nine states earmark their excise tax revenues from alcohol sales to help fund alcohol treatment programs, reveals analysis from Ensuring Solutions to Alcohol Problems. Arizona, Idaho, Kansas, Mississippi, Montana, New Jersey, Oregon, Tennessee and Utah made the list. Alcohol troubles cost the U.S. economy almost $185 billion annually, with health care costs alone equaling $26 billion and over 51 million extra sick days.


As a percentage of total payroll expense, employer costs for health benefits have risen steadily from 7.3 percent in 2000 to 7.8 percent in 2002, and then jumped a full percent to 8.8 percent in 2003, according to the 2003 Hay Benefits Report. Back-to-back 15 percent increases this year and next are forcing employers to cut back salary increases, reduce staff and shift medical costs to employees.

One of the most striking changes in the last two years has been the increase in employee copayments for doctor visits. Fifty-seven percent of plans are charging $15 compared with 47 percent last year and only 33 percent in 2001. The typical copay for generic drugs doubled in the last two years from $5 to $10. Typical copays for brand-name drugs have also doubled and now stand at $20 for products on formulary and $30 for those not listed.

More cost shifting seems likely in 2004, but the Hay Group cautions that there is a limit to employee tolerance, especially in lower wage brackets, noting that the average annual employee premium contribution for family coverage is now $2,150. The Group tags disease management programs as the only long-term response that does not involve cost shifting.

The prevalence of Alzheimer’s disease will nearly triple by 2050, predicts a recent study in the journal Archives of Neurology. With current economic studies showing that Alzheimer’s costs U.S. business $61 billion annually, it’s no surprise that more employers are starting to offer long-term care. The Society for Human Resource Management says 47 percent of employers currently offer LTC vs. 36 percent three years ago.


News & Trends.

Business and Health

Sep. 1, 2003;21.