account based plans – the alphabet soup...2/25/2015 3 dbs services offered section 125 – fsa...
TRANSCRIPT
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Account Based Plans –The Alphabet Soup
WASBO Foundation Accounting Conference
March 11, 2015
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Introduction
Presenter
Christopher Kramer - Sales Manager
21 years experience designing FSAs, HRAs and HSAs
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Learning Objectives
Provide an overview of FSAs, HRAs, and HSAs
Discuss how Districts are utilizing the plans
Review of the pros and cons of each program
Understanding the Alphabet Soup
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Introduction to DBS
TPA since 1987
Located in Hartland, WI
Communication Emphasis
Over 150 Public School Districts
Member of ECFC
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DBS Services Offered
Section 125 – FSA (Flexible Spending Accounts)
Section 105 – HRA (Health Reimbursement Arrangements)
Section 223 – HSA (Health Saving Accounts)
Section 132 – TRP (Transportation Reimbursement Plans)
Customized Employee Reimbursement Plans
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District Challenges
Rising healthcare costs
Tighter budgets
Changing workforce – needs and expectations
More regulations
Retirement benefit concerns
How do account based plans fit into the challenges?
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Medical Flexible Spending Accounts (FSAs)
Overview
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Flexible Benefit Plans or Cafeteria Plans Allow employees to pay for certain expenses using pre-tax dollars from their
paycheck
Regulated under IRS code – Section 125 and other code sections
Three basic categories
Pre-tax Premiums – employee share of premiums such as group health and dental insurance premiums
Dependent Care FSA – Daycare/Elder care type expenses
Medical FSA – Out-of-pocket costs for health, dental, & vision
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Medical FSA
Program that allows employees to be reimbursed for certain “medical expenses” with monies that are tax-free
Expenses should be true out-of-pocket expenses – ones not reimbursed by insurance or other arrangement
Reimbursements are tax-free to the employee
Void of Federal, State, and FICA taxes
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Medical FSA Eligible Out-of-Pocket Expenses Medical Insurance deductibles, co-pays and co-insurance
Dental Insurance deductibles and co-insurance
Dental expenses such as exams, caps, crowns, bridges & fillings & Orthodontia
Vision exams, glasses, frames, contact lenses & supplies
Lasik eye surgery
Hearing aids (including batteries)
Routine exams/physicals/mammograms
Chiropractor costs
Prescription drugs
Mileage to obtain medical care
Learning Objective: Medical FSAs provide for immediate tax savings on current qualified expenses
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Medical FSA Ineligible Expenses Include: Health insurance premiums
Early retiree health insurance premiums
Long term care insurance premiums
Cosmetic surgery
Imported prescription drugs
Marriage counseling
Learning Objective: Medical FSAs are not a method to assist retirees with paying for early retirement health insurance premiums
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Medical FSA Expenses can be for the employee, spouse, and/or legal dependents
(including children to age 26)
Employee must be eligible for the employer group health plan
Can use whether on employer health plan or not
Learning Objective: Check your plan’s eligibility to make sure it matches your group health plan eligibility
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How the Medical FSA works Employer determines Plan Year (the 12 month period the plan runs)
DBS District clients: 42% = 1/1 to 12/31
30% = 7/1 to 6/30
20% = 9/1 to 8/31
8% = Other
Employee estimates his/her expenses you expect to incur in the Plan Year Amount divided by the number of pay periods - deducted from the paycheck pre-tax
Employee incurs an expense and can access the Medical FSA dollars The IRS requires that all expenses be substantiated
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Medical FSA – Employee Benefit
Access to annual election at anytime in plan year
Employer fronts the money
Pay back over the entire year
Flexible
Use for any expenses within the account
Tax-free dollars
No Federal, State or FICA taxes paid
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Use-or-lose provision IRS rules require that you use the money you set aside during the
plan year
Unused money is forfeited to the employer
Carryover provision – Employer decision
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Medical FSA Carryover Provision
IRS Notice 2013-71:
Modifies the “Use or Lose” provision for Medical FSAs
Allows up to $500 of unused Medical FSA dollars to be carried over to the next plan year
Participants can still contribute up to $2,550 of new funds in the next plan year
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Carryover Example Participant elected $1,000 in the Medical FSA for 2014
As of 12/31/14 there is $300 of unused funds
$300 is carried over into 2015 for the employee to use
Employee can also elect up to $2,550 of new contributions in 2015
Approximately 70% of all DBS clients have elected this
Learning Objective: The carryover may increase plan participation. However, the carryover is not a method of accumulating funds for the future.
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Medical FSA
Employer saves FICA taxes on each dollar redirected in FSA
Medical FSA subject to COBRA for certain participants
Employer risk if the participant terminates employment mid-year and has been reimbursed more than contributed
Enroll one time a year - employees can possibly change election if they have a qualified status change
Learning Objective: Increased participation usually allows the District FICA savings to pay for the plan costs
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Medical FSA Usage Primarily used to provide employees a tax-break on health care expenses
Not used as a tool to assist retirees with health care expenses
Trend in employers contributing to the Medical FSA to offset higher out-
of-pocket expenses for active employees
Example: County client raised deductible but contributed employer dollars into the Medical FSA – intent to offset deductible increase but employees can use toward any expense
Employer dollars should be $500 or less – does not count toward Medical FSA maximum
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Health Savings Accounts (HSAs)
Overview
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Offering an HSA
Employers looking to consumer driven health plans to control health care costs
High Deductible Health Plans with HSAs growing in popularity
Estimated 13.8 million people have established HSAs (2014)
Estimated $27 billion dollars in HSAs (January 2015)
Specific rules to consider to determine if HSAs will meet your objectives
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Health Savings Accounts Background
Part of Medicare Prescription Drug Improvement and Modernization Act
Regulated by Code Section 223, Section 12 of the Act – created HSAs
Effective 1/1/2004 – Ten years old!
Based on Medical Savings Accounts (or Archer MSAs)
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What is an HSA?
Individually owned tax exempt trust – a type of bank account
Money can be contributed on a tax-free basis by
Participant
Employer
Combination
Utilize funds to pay for current & future “medical” expenses on a tax-free basis
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What is an HSA?Qualified medical expenses include:
Deductibles
Prescription Drugs
Dental care
Vision expenses
Chiropractic care
Acupuncture
Medicare premiums
Learning Objective: HSA funds cannot be used to tax-free to pay for group health insurance premiums prior to age 65
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What is an HSA?
Dollars rollover if unused
Utilize for future qualified expenses tax-free basis
Utilize for non-qualified expenses
Taxable
Possible penalty
Some liken it to a health care IRA
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Qualifying for an HSA HSA accountholder MUST have specific insurance coverage:
Called a qualified “High Deductible Health Plan” (HDHP)
Not all plans with a higher deductible are HDHPs
Ability to have an HSA based on what health plan(s) cover the accountholder
Qualified HDHPs have deductibles and out of pocket limits that are established by law
Insurance carrier should confirm plan is a qualified HDHP
Learning Objective: Can only establish HSA if covered by a HDHP
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HDHP DeductibleIn-network deductible (2015) must be at least:
Self-only coverage: $ 1,300
Family coverage: $ 2,600
All expenses incurred apply to the deductible (ex: office visits, surgeries, prescription drugs, etc.)
The HDHP cannot pay any claims until at least the minimum deductible amounts have been satisfied
Only exception are expenses the government deems “preventative care”
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HDHP Out-of-Pocket Maximum
In-network out-of-pocket maximum cannot exceed (2015):
Self-only coverage: $ 6,450
Family coverage: $ 12,900
This may include the deductible, co-insurance and copays
Deductible and out-of-pocket maximums indexed by IRS
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HDHP Deductible Example Go to the doctor and provide them your insurance card
The HDHP insurance plan is billed $200 for the office visit
The insurance carrier applies their negotiated in-network discounts to the $200 claim reducing it to $150
The $150 is applied to the deductible
Doctor bills you for $150
Use your HSA money to pay the $150© 2015
HDHP Deductible Example Go to the pharmacy and provide them your insurance card
Your HDHP insurance plan is billed $110 for the prescription
The insurance carrier applies their negotiated in-network discounts to the $110 claim reducing it to $75
The $75 is applied to the deductible
You pay the pharmacy $75 at point of purchase
Use your HSA money to pay the $75
Learning Objective: Prescription process is one of the biggest changes for employees to understand
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Qualifying for an HSAHSA accountholder cannot be covered by other first-dollar medical coverage such as:
Other non-HDHP health insurance
Medical Flexible Spending Account*
Health Reimbursement Arrangement*
*Including a spouse’s plan Medicare (including Part A) or Tricare
The accountholder cannot be a dependent on someone else’s tax returnLearning Objective: No HSA dollars can be contributed to an HSA if the accountholder is covered by Medicare or other non-HDHP coverage
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Qualifying for an HSA Eligibility is based on the coverage the potential HSA accountholder has
Example 1: Employee A has family HDHP coverage Spouse elects single coverage at her employer Employee A qualifies for HSA as he is not covered by non-HDHP
coverage Example 2:
Employee A has family HDHP coverage Spouse enrolls in general purpose Medical FSA Employee A is not qualified for HSA as he has non-HDHP coverage
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Funding an HSA2015 Contribution limits:
Based on a calendar year
Indexed each year
Self-only coverage: $3,350
Family coverage: $6,650
(Maximum per family)
Total maximum by employer and employee
Learning Objective: Contribution limits based on calendar year while District’s fiscal year is the 7/1 to 6/30 timeframe.
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Funding an HSA
2015 Catch-up Contribution limit:
Catch-up contribution: $1,000 (If you are 55 years old or older by year end)
If husband/spouse both 55 year old, the spouse must establish an HSA for her $1,000 catch-up amount
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How can HSAs be Funded
Payroll deducted employee contributions
Deducted from payroll pre-tax Federal, State & FICA in Wisconsin Most save 15%-25% in taxes Employers save matching FICA tax
Amend Section 125 plan document to allow pretax HSA deductions
Employer decides if they will allow payroll deductions
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How can HSAs be Funded
Post-tax direct employee contributions
Contribute dollars directly to HSA with after-tax dollars Set up EFT from regular bank account Periodically send check to HSA
Claim off your income taxes at year-end
Pre-tax and after-tax contributions cannot exceed the contribution maximums Larger tax savings if contributed from payroll
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Employer contributions
Employers can contribute to employees HSA Need to make comparable contributions for all comparable
participating employees during the year Must be the same dollar amount or percentage of the HDHP
deductible
Failure to do so results in a 35% excise tax equal to all of the employers contributions for the year
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Employer ContributionsComparability rules Permit different contributions for three tiers of family coverage
(self+1, self +2, and self+3 or more) Require, if differing amounts, that the amounts for the higher tiers be
greater than the amounts for the lower tiers May exclude collectively bargained employees from comparability
testing Permit employer to contribute more to non-HCEs than to HCEs Based on a calendar year basis Can restrict to those on the employer’s health plan
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Employer ContributionsEmployer contributions outside a Section 125 Plan
Comparability rules Do not permit different contributions based on:
Salaried/hourly, exempt/non-exempt, etc. Geographic locations Divisions within the company Whether employee completes a wellness activity Age, sex, length of service, wages, health conditions, etc.
General Rule - Keep everyone the same!
Learning objective: Employers cannot make “special” contribution arrangements for select employees
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Employer ContributionsEmployer contributions inside a Section 125 Plan Comparability rules do not apply to Cafeteria Plan Regular Section 125 non-discrimination rules apply
Allows more employer flexibility with employer funding Need to allow employee to make pre-tax contributions
Matching HSA contributions Employee contributes $1 pre-tax into HSA, then employer
matches $.50 Incentive based contributions
Complete health risk assessment Non-elective seed money – regardless of whether the employee
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HSA Distributions Can access HSA dollars tax-free for any “qualified medical expense”
permitted under federal tax law
Expenses for spouse and legal dependents also qualify The underlying HDHP follows the “to age 26” rule however The HSA follows the “old” definition of dependents – need to
communicate to employees Adult children can be covered by the health plan
Set up own HSA if independent
Learning Objective: Employees need to understand the adult child discrepancy between the health plan and HSA
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HSA Distributions
Withdrawals for non-qualified items are subject to income tax + a 20% penalty (and possible State penalty – WI penalty 1/3 of Federal) Car, vacation, cosmetic surgery, etc.
Penalty waived if Attain age 65 for accountholder Becomes disabled
At age 65, non-qualified expense only subject to income taxes
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HSA Distributions
You can only access dollars that have been contributed so far
No advanced payment
Expenses must be incurred after the establishment of the HSA Example:
Have dental work 12/10/14 Establish HSA 1/1/15 The 12/10/14 dental work is not a tax-free distribution
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Examples of Taxable ExpensesExpenses which are Taxable/Penalized include: Surgery for cosmetic reasons Medical supplies that are not medically necessary Teeth bleaching/whitening/bonding Health club membership dues Over-the-counter vitamins for general health purposes Cosmetic drugs Medicare supplements Early retiree health premiums
Learning Objective: HSAs are not presently a method to fund early retiree health insurance premiums
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HSA Funds Rollover HSA funds are non-forfeitable once in the account
Including Employer funded amounts
Employer contributions are a “cost” of the health plan
Accountholder owns the money
Unused dollars roll forward year to year
No “use-or-lose” provision
Learning Objective: Employers should recognize that employer contributions to HSAs are owned by the employee – The employer should include the HSA contributions as a cost of their overall health care expenditure
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HSA FundsWhat if you drop the HDHP? You can utilize HSA funds on qualified medical expenses
At any time regardless of what type of health coverage you have in the future
You lose your eligibility for the HSA which means: You cannot contribute additional money if you are not covered under a
HDHP
Unused dollars stay in the account and rollover year to year
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HSA Trustee
Generally HSA funds held in a very liquid account like a savings account
Some allow HSA dollars to be invested once a participant accumulates a certain amount in the HSA Participant could gain higher rate of return OR Participant could lose value in the HSA
Interest earned accumulates tax-free
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Trustee Responsibility
Trustee reports to the participant and IRS Total dollar amounts contributed to the HSA Total dollar amounts withdrawn from the HSA
Trustee does not report or keep track of The nature of the expense Providers utilized Name of health care user
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Account Holder Responsibility
Employee must keep track of which expenses qualify and which do not Self-directed claims substantiation Must keep documentation validating expense
Nature of expense Date of service Out-of-pocket cost Provider Recipient of services
Participant Form 8889
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HSA and FSA
Cannot contribute to the HSA if covered by the Medical FSA (including spouses plan)
Doesn’t matter if you have spent all your Medical FSA money early
Medical FSA carryover can be converted to a Limited Purpose FSA at plan year end per recent IRS informal comments
Participation in the Dependent Care FSA does not affect having an HSA
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HSA and FSA Employer can offer a Limited Purpose FSA
Participant maintains eligibility to contribute to HSA
Utilize dollars only for dental and vision expenses Cleanings, braces, crowns, glasses, contacts, etc.
Why use if HSA covers the same expenses? Helps participants maximize tax savings Preserve HSA dollars for the future Aids participants with high expenses
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HSA and HRA Health Reimbursement Arrangements (HRAs)
HRAs – employer funded arrangement where participants are reimbursed medical expenses (as defined by the HRA) tax-free if a participant/family incurs the expense
Cannot contribute to the HSA if covered by many HRA plans (including spouse’s plan) Examples includes:
Active employee 213(d) HRAs HRAs reimbursing medical deductible expenses HRAs reimbursing medical care
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HSA and HRA However certain HRA designs do allow for employees to contribute to HSAs
Examples include: Limited Purpose HRAs – Reimburse dental/vision expense only
Retiree Only HRAs – HRA funds credited while working and only available upon retirement
Post-Deductible HRA – HRA that reimburses active employees only after: Person with single coverage meets at least $1,300 of deductible Person with family coverage meets at least $2,600 of deductible Participant still qualifies to contribute to an HSA
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Implementing an HSA
Determine fiscal impact of switching to HDHP
Compare cost of current plan to HDHP
Figure in the cost of any employer contributions into cost of HDHP
Review impact of HDHP on employees Compare out-of-pocket expenses under both plans Compare premium share from paycheck
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Health Reimbursement Arrangements (HRAs)
Overview
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What is an HRA?
Health Reimbursement Arrangement
Section 105 and 106 of IRS code
A tax favored arrangement allowed under the IRS code
Allows for employees to receive reimbursement for “qualified medical expenses”
Reimbursements are tax-free
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What is an HRA?
Health Reimbursement Arrangement
Funded only with Employer dollars
Often a notional account – pay as you go arrangement
Section 162 – Allows employer to a federal income tax deduction for ordinary and business expenses paid or incurred
Allows for employer-provided health care as a qualified expense
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What is an HRA? Qualified medical expenses can include:
Deductibles, co-insurance, office visit copays
Dental and vision expenses
Prescription drugs
Chiropractic care and acupuncture
Premiums for group health insurance
Long term care premiums
Learning Objective: HRAs can be a vehicle to help retirees pay for early retiree health premiums
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What is an HRA?
Employer provides access to a certain amount of money
Participant incurs the expense
Claim is substantiated
Receives tax-free reimbursement
Participant only accesses HRA funds IF they incur an expense
HRAs are an “If/Then” arrangement
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HRA Example District Client
District changed health plan design
Increased deductible to $2,000 (from $250) to lower premiums
Agreed to reimburse the back-end $1,750 of the deductible
Utilize gross premium savings to reimburse participants the deductible IF they incur the expense
Over 80% of participants would need to meet full deductible before health plan with HRA would cost more than the low deductible plan
Savings stay with District instead of being sent to insurance carrier
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HRA Rules Expenses incurred after the establishment of the HRA are eligible for
reimbursement
No retroactive claim payments
Expenses must be qualified and substantiated
Claim sampling not allowed
Reimbursements for employee, spouse and/or legal dependents (including children to age 26)
No cash out of unused HRA dollars
Learning Objective: HRAs can only be used for medical expenses. They are not an “asset” like a retirement plan
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HRA Rules
HRAs subject to non-discrimination testing
Rules prohibit discrimination in favor of highly compensated
individuals as to:
Eligibility to participate
Benefits provided
Administrators vs. Teachers
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HRA Rules HRAs subject to COBRA and HIPAA
COBRA only time employee funds HRA
PHI information must be confidential
CMS reporting may apply
SBC reporting applies
PCORI fees may apply
Best practice to have a plan document outlining plan
Eligibility
Benefits available
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Plan Design
Employer controls the HRA plan design
Can modify the HRA each plan year
HRA Design Year 1
HRA Design
Year 2
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Plan Design
Plan Year
Timeframe the HRA runs and dollars credited
Expenses incurred during Plan Year
Type of Plan Year
Calendar year
Fiscal year
Other
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Plan Design
Eligibility
Active employees covered by the employer group health plan
Active employee covered by any employer’s group health plan
Specific collectively bargained employees covered by a group health plan
Retirees
Former employees
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Plan Design
Eligibility
The HRA must be integrated with a group health plan meaning
the employee must be covered by a group health plan OR
Benefit retirees only OR
Be limited to dental and vision expenses
HRA cannot be integrated with individual health policies
A non-integrated HRA is not allowed for active employees
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Plan Design
Eligible expenses
Limit to specific expenses
I.E. Deductible only
I.E. Dental expenses only
All 213(d) expenses
Separate dollars for separate expenses
Example: $1,000 for deductible and $750 for prescription drug copays
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Plan Design
Crediting amounts
Amount to fund
Dates to credit
Beginning of plan year
Monthly
Other
HRA
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Plan Design Reimbursement schedule
Participant access to HRA
First dollar coverage
Participant expense first
Example: employee must incur $250 of expense before HRA used
Split dollar
Example: 80% - If employee incurs $100 of expense, then $80 reimbursed
Learning Objective: HRAs are flexible with the plan design
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Plan Design Rollover provision
Amount to rollover
Percentage or flat dollar amount
Access to rollover
While working and/or upon retirement
Accumulation maximum
Plan year maximum pay out
Must allow employee/retiree to opt out of HRA if the participant elects to purchase coverage via the Marketplace and qualify for a Federal subsidy
Rollover Bucket
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Plan Design Rollover provision - retirees
Length of time to utilize funds
Amount accessible in Plan Year
Additional dollars credited during retirement
Spouse can utilize upon retiree death
No cash out
KEY: Retirees cannot be hired back at the employer without being in violation of the ACA rules – HRA would need to be suspended during the period the retiree is working
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Plan Design
Purpose of rollover
Accumulate funds for retirement health care expenses
Defined contribution versus defined benefit
Consumerism
Employee involvement with health care
Public perception
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Common Design #1
Deductible Reimbursement HRA
HRA for employees/retirees on health plan
Increase deductible to lower base premiums
Utilize premium savings to make employee whole IF expense incurred
Retain net savings to offset future increases
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Common Design #1
Deductible key factor in cost of health plan
80/20 rule – most people are not high users of health insurance
Lower the fixed base cost of the health plan
Deductible
Health Plan Cost
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Common Design #2
Deductible Reimbursement with a Rollover
Allow a percentage of unused dollars to rollover into future
Participants may accumulate a pool of dollars to offset future
health care costs and/or,
Allow participants to build up funds for retirement
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Common Design #2 Deductible Reimbursement with a Rollover
Can allow unused dollars to be used for future deductible expenses
Example:
Offer a $2,000 deductible plan in year one
Provide $1,750 of reimbursement – allow rollover
Offer a $4,000 deductible plan in year two (to keep premiums lower)
Provide $1,750 of reimbursement PLUS whatever rolled over from year one
Employees incented to try to preserve HRA dollars
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Common Design #2 Deductible Reimbursement with a Rollover
Can also design HRA so that unused dollars are credited to a “retiree HRA”
Retiree HRA dollars only accessed upon retirement
District can expand the list of eligible expenses upon retirement
Example:
Offer a $2,000 deductible plan in year one
Provide $1,750 of reimbursement – allow rollover
Participant uses $750 for current deductible expenses
Credit the $1,000 of unused dollars for retirement use
Whatever the employee saves up is their retiree health benefit
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Common Design #3 Retiree Only HRA
Eliminate Employer paying for X number of years of health insurance upon retirement
Some employers grandfather in employees hired before a certain date to the old benefit – new hires receive HRA
Establish an HRA that credits a certain amount each year to an HRA
Accessible only upon retirement from the Employer
Some allow employees to spend down on qualified expenses if terminate prior
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Common Design #3 Retiree Only HRA
Upon retirement employee can
Utilize HRA dollars to pay for premiums to stay on the employer plan
Drop the employer plan and purchase own coverage with HRA dollars
Drop the employer plan and go on spouses plan
Can’t use HRA dollars for spouse’s plan premium if they are
deducted pre-tax from his/her employer’s paycheck
Utilize dollars to pay for out-of-pocket deductibles, prescription drugs,
dental, vision, chiropractic, etc.
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Common Design #3 Retiree Only HRA
Common amounts have ranged from $1,000 - $3,000 a year
Can place a lump sum in the HRA in addition to annual amount
Some base lump sum amount on how long employee has until retirement
Example: 1-5 years - $15,000, 6-10 years - $12,000, etc.
Uncertain if this schedule is allowable with IRS – guidance welcome
Be careful with not creating a separate class for administrators
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Retiree HRA – Fund in OPEB Trust
Retiree HRA dollars allowable in a Trust although not required
Investments must be prudent for what Employer is trying to accomplish
Someone must be the fiduciary for the fund
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HRA and Wellness Trend Similar concept to previous examples except
Participants receive base HRA
Credit extra dollar amount for participants completing wellness activities
Biometric screening, health risk assessment, etc.
Base on completion of activities – not on the results
Complete health risk questionnaire: $200 extra
Complete routine physical: $200 extra
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HRA and Wellness Trend
Some insurance companies promoting concept
Designed to incent employees to keep a healthy lifestyle
In general:
Healthy behavior leads to
Less Health Risks
Less chronic disease
Lower health care costs
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HRA and Wellness Trend Types of wellness activities
Health risk assessment (possible review of results with nurse)
Cholesterol screening
High blood pressure screening
Flu vaccination
Non-tobacco user or participation in tobacco cessation program
Preventative exam completion
Annual mammogram
Participation in exercise program
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HRA - Unused Sick Time or Vacation Employees accumulate dollars for unused sick time
Upon retirement, establish HRA that converts unused sick time into
HRA dollars
Utilize for qualified medical care tax-free
Same rate for all employees
No cash out option
All employees on the plan
Learning Objective: Employees/Employers are not taxed on the value of the sick days however the employees must use it on health care expenses
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Medical FSA/HSA/HRA General Comparison
Question Medical FSA HSA HRA
Who can set-up a plan? Employer Employee (if covered by HDHP) Employer
Who can participate? Employee Employee (if covered by HDHP) Employee and/or retirees
Who can contribute? Employee and/or employer Employee and/or employer Employer
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Medical FSA/HSA/HRA General ComparisonQuestion Medical FSA HSA HRA
Contribution maximum?$2,550 for 2015 (or less if
employer elects)
$3,350/single coverage and $6,650/family coverage
(subject to certain limitations) -Accountholders 55 years and
older can contribute an additional $1,000 per year
No statuatory limitation - each employer may establish a limit
Can unused dollars carry over year-to-year?
Up to $500 of unused monies may carryover
into the the next plan year if the employer elects this
option
YesYes if the employer elects this
option
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Medical FSA/HSA/HRA General ComparisonQuestion Medical FSA HSA HRA
What medical expenses that can be reimbursed?
Expenses in Code section 213(d) but not health insurance premiums
Expenses in Code section 213(d) but generally not health
insurance premiums except in limited situations
Expenses in Code section 213(d) inclusived of health insurance
premiums - dependent upon the situation
Can non-medical expenses be reimbursed?
NoYes but they will be subject to
Federal/State taxes and possible penalties
No
Does the plan follow the adult children to age 26 rule for
tax-free qualified expenses?Yes No Yes
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Conclusion
The alphabet soup of account based plans can be confusing
Be sure to clarify what your objectives are when reviewing the plans
All the plans have a place – Are they right for your District?
© 2015
Phone: 800-234-1229 Fax: 262-367-5938 www.dbsbenefits.com
The following is a list of expenses that potentially qualify under a Section 105-Health Reimbursement Arrangement.
(This list is not all inclusive)
Abdominal, arch and back supports
Acupuncture
Alcoholism treatment
Ambulance expenses
Artificial limbs
Birth control pills and other contraceptive devices
Blood tests and transfusions
Braces/orthodontia expenses
Braille books & magazines
Breast pump rental
Breast Reconstruction Surgery (following mastectomy for cancer)
Cardiographs
Chiropractor fees
Christian Science Practitioner
Co-insurance expenses
Contact lenses, contact lens solutions and enzyme cleaners
Co-pays (for office visits, prescription drugs, urgent care, etc.)
Crutches
Deductible expenses under a medical plan
Dental Fees such as X-rays, cleanings, exams, crowns
Dentures
Diagnostic fees
Diabetic supplies and insulin treatments
Drug addiction treatments (medical expenses amounts you pay for
an inpatient's treatment)
Elastic hosiery (with letter of medical necessity)
Eyeglasses & Eye Surgeries
Fees paid to health institute prescribed by doctor
Guide dog and maintenance of guide dog
Gum treatment
Gynecologist services
Hearing aids and batteries
Heating devices (medically necessary)
Hospital services
Hydrotherapy (medically necessary)
Inclinator
Invalid chair
Lab tests and fees
Legal fees (required to authorize health treatment)
Lodging (away from home for outpatient care)
Mammograms
Metabolism tests
Neurologist fees
Nursing home and services (including board and meals)
Obstetrician services
Operating room costs
Ophthalmologist services
Optician services
Optometrist fees
Oral surgery
Organ transplant (including donor's expenses)
Orthopedist fees and orthopedic shoes
Osteopath fees
Oxygen and oxygen equipment
Pediatrician services
Physician services
Physiotherapist services
Podiatrist services
Postnatal treatments
Practical nurse for medical services
Premiums for free-choice medical plan
Premiums for group clinical care plan
Premiums for group hospital plan
Premiums for health policy
Premiums for hospitalization
Premiums for medical care
Premiums for medical service cooperatives
Premiums for voluntary federal Medicare insurance
Prenatal care
Prescription medicines
Prosthesis
Psychiatrist fees
Psychoanalyst, Psychologist, Psychotherapy services
Radium therapy
Reclining chair (with letter of medical necessity)
Sickroom supplies
Smoking cessation programs (by prescription only)
Special auto equipment for the handicapped
Special mattresses
Spinal fluid tests
Splints
Sterilization
Surgeon and surgery fees
Telephone/TV for hearing impaired
Therapy equipment
Transplants
Transportation expenses (relative to health care)
Tuition for child with learning disability
Ultra-violet ray treatment
Vaccines
Vasectomy services
Weight loss programs fees (with approved letter of medical necessity
from physician)
Wheelchair
Whirlpool bath (by prescription)
X-ray
Special Circumstance Expenses:
Capitol Expenses (for special equipment installed in a home, or for
improvements, if for medical purposes)
Lead paint removal
Air conditioner (when necessary for breathing)
Registered nurses fees
Long term care insurance premiums
Weight loss programs fees (with approved letter of medical necessity
from physician)
Phone: 800-234-1229 Fax: 262-367-5938 www.dbsbenefits.com
Special Circumstance Expenses (continued):
Exercise equipment (by prescription)
Fluoridation unit
Special school or home costs (for the physically and mentally
impaired)
Examples of Non-Qualifying Medical Expenses
Advance payment for services rendered in the next year
Athletic club memberships
Cosmetic surgery
Diaper service
Funeral, cremation or burial expenses
Hygiene products
Marriage Counseling
Maternity clothes
Nonprescription medications
Swimming pool
Vitamins and dietary supplements for general health
Note: Expenses cannot be reimbursed or paid for by any other source that includes but is not limited to: Insurance
Contracts, Health Reimbursement Arrangements, Flexible Spending Accounts, Health Savings Accounts, Employers and
Governmental Agencies. This list is a guide of Section 213d qualified expenses and is not all inclusive. If further
verification is needed regarding whether an expense qualifies, please contact our office at (800) 234-1229. Consult your
tax advisor for maximum benefit. It is understood Diversified Benefit Services, Inc. is not engaged in the practice of law
or giving tax advice.
Please see a copy of the Summary Plan Description that list the expenses that qualify under your Employer’s
Health Reimbursement Arrangement.
Phone: 800-234-1229 Fax: 262-367-5938 www.dbsbenefits.com
The following is a list of expenses that potentially qualify under a Section 223-Health Savings Account.
(This list is not all inclusive)
Abdominal, arch and back supports
Acupuncture
Alcoholism treatment
Ambulance expenses
Artificial limbs
Bandages
Birth control pills and other contraceptive devices
Blood tests and transfusions
Braces/orthodontia expenses
Braille Books & Magazines
Breast pump and supplies
Breast Reconstruction Surgery (following mastectomy for cancer)
Cardiographs
Chiropractor fees
Christian Science Practitioner
Co-insurance expenses
Contact lenses, contact lens solutions and enzyme cleaners
Co-pays (for office visits, prescription drugs, urgent care, etc.)
Crutches
Deductible expenses under a medical plan
Dental Fees such as X-rays, cleanings, exams, crowns
Dentures
Diagnostic fees
Diabetic supplies and insulin treatments
Drug addiction treatments (medical expenses amounts you pay for
an inpatient's treatment)
Elastic hosiery (with letter of medical necessity)
Eyeglasses & Eye Surgeries
Fees paid to health institute prescribed by doctor
Guide dog and maintenance of guide dog
Gum treatment
Gynecologist services
Hearing aids and batteries
Heating devices (medically necessary)
Hospital services
Hydrotherapy (medically necessary)
Inclinator
Invalid chair
Lab tests and fees
Legal fees (required to authorize health treatment)
Lodging (away from home for outpatient care)
Long term care services
Mammograms
Metabolism tests
Neurologist fees
Nursing home and services (including board and meals)
Obstetrician services
Operating room costs
Ophthalmologist services
Optician services
Optometrist fees
Oral surgery
Organ transplant (including donor's expenses)
Orthopedist fees and orthopedic shoes
Osteopath fees
Oxygen and oxygen equipment
Pediatrician services
Physician services
Physiotherapist services
Podiatrist services
Postnatal treatments
Practical nurse for medical services
Premiums for continuation coverage (COBRA or USERRA)
Premiums for Medicare Part A, B, C, & D (if 65 or older)
Prenatal care
Prescription medicines
Prosthesis
Psychiatrist fees
Psychoanalyst, Psychologist, Psychotherapy services
Qualified Long Term Care contract
Radium therapy
Saline Solution for contact lenses
Sickroom supplies
Smoking cessation programs (by prescription only)
Special auto equipment for the handicapped
Spinal fluid tests
Splints
Sterilization
Surgeon and surgery fees
Telephone/TV for hearing impaired
Therapy equipment
Transplants
Transportation expenses (relative to health care)
Tuition for child with learning disability
Ultra-violet ray treatment
Vaccines
Vasectomy services
Weight loss programs fee (with approved letter of medical necessity
from physician)
Wheelchair
Whirlpool bath (by prescription)
X-ray
Information Technology Solutions
P.O. Box 260 Hartland, WI 53029
(262) 367-3300 (800) 234-1229 Fax (262) 367-5938
www.dbsbenefits.com
Special Circumstance Expenses:
Capitol Expenses (for special equipment installed in a home, or for improvements, if for medical purposes)
Lead paint removal
Air conditioner (when medically necessary for breathing)
Registered nurses fees
Exercise equipment (by prescription)
Fluoridation unit
Long term care insurance premiums
Over-the-counter drugs & medicines – require a prescription from physician and a prescription number through a pharmacy
Examples of Non-Qualifying Medical Expenses
Advance payment for services rendered in the next year
Athletic club memberships
Cosmetic surgery
Diaper service
Funeral, cremation or burial expenses
Hygiene products
Marriage counseling
Maternity clothes
Medicare supplement premiums
Nonprescription medications
Swimming pool
Vitamins and dietary supplements for general health
Note: Expenses cannot be reimbursed or paid for by any other source that includes but is not limited to: Insurance Contracts, Health Reimbursement
Arrangements, Flexible Spending Accounts, other Health Savings Accounts, Employers and Governmental Agencies. This list is a guide of Section 213d
qualified expenses and is not all inclusive. If further verification is needed regarding whether an expense qualifies, please contact our office at (800) 234-
1229. Consult your tax advisor for maximum benefit. Certain expenses may require special circumstances in order to qualify for a tax-free withdrawal from
the HSA. Please consult with your tax advisor. It is understood Diversified Benefit Services, Inc. is not engaged in the practice of law or giving tax advice.
The information presented here is not intended to serve as a substitute for tax advice from a qualified professional.
P.O. Box 260 Hartland, WI 53029
(262) 367-3300 (800) 234-1229 Fax (262) 367-5938
www.dbsbenefits.com
Information Technology Solutions
Limited Purpose Flexible Spending Account (FSA) Overview
What is a Limited Purpose FSA? A Limited Purpose FSA is a Flexible Spending Account (FSA) for employees that are enrolled in and
contribute to (or have employer contributions made to) a Section 223 Health Savings Account (HSA).
Why do I need to enroll in a Limited Purpose FSA if I contribute to an HSA? The IRS rules governing HSAs stipulate that participating in a Medical Reimbursement FSA disqualifies you
from being eligible for an HSA. However, the rules do allow you to participate in the Medical Reimbursement
FSA if it is a Limited Purpose FSA.
What does the Limited Purpose FSA do? The Limited Purpose FSA works just like a regular FSA, however the expenses that qualify for reimbursement
are limited. By using this account, you save approximately 20%-30% in taxes on the expenses that qualify.
What expenses qualify for reimbursement under a Limited Purpose FSA? Dental and vision expenses (as defined by the IRS qualify). Examples include:
Dental Vision Teeth Cleanings Fillings Eye Exams Saline Solutions
Crowns/Bridges Dental Caps Prescription Glasses Lasik Surgery
Orthodontia Dental Sealants OTC Reading Glasses Contact Lenses
By enrolling into the Limited Purpose FSA, you can save money in tax dollars on these items while preserving
your HSA funds for other purposes.
How do I submit claims for the Limited Purpose FSA?
The Limited Purpose FSA works just like the Medical Reimbursement FSA. Claims may be submitted to DBS
(via online, mail or fax) along with documentation for the expense. The services must be performed during
your FSA Plan Year. The documentation must include nature of expense, date of service, name of the provider
and out-of-pocket cost of the services.
Do I need to utilize all of my funds during the Plan Year? Yes, all the monies set aside in the Limited Purpose FSA should be utilized during the Plan Year and
submitted by the Plan Year run-out period. Unused monies may be forfeited per the IRS regulations and the
provisions of your plan. It is important to plan conservatively and only set aside money for planned expenses.
Where can I get more information on HSAs? For additional information on HSAs, please visit the Internal Revenue Service website at www.irs.gov.
Who do I call with questions on the Limited Purpose FSA? Contact DBS toll-free at 1-800-234-1229 Monday-Friday (8:30 a.m. – 5:00 p.m. CST).
Additional plan information and participant balance information is available on the DBS website. Services, Inc.
P.O. Box 260, Hartland, WI 53029
800-234-1229
www.dbsbenefits.com