Alphabet Soup: Review and What’s New with HRAs, FSAs & HSAs Presented by: Darcy L. Hitesman, Esq....
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Transcript of Alphabet Soup: Review and What’s New with HRAs, FSAs & HSAs Presented by: Darcy L. Hitesman, Esq....
Alphabet Soup: Review and
What’s New with HRAs, FSAs &
HSAs
Presented by:Darcy L. Hitesman, Esq.
12900 – 63rd Avenue NorthMaple Grove, MN 55369
Phone: 763-503-6620Website: www.HitesmanLaw.com
October 6, 2011Government Payroll Review Seminar
(GPRS)
2
Introduction
• Lots has happened• Lots is happening• Focus on the defined contribution
methods
3
Legal Box
• Outer limits• Lots of room inside– Flexibility– Responsibility
4
How the Code Works
• General rule:– Anything provided by an employer to
an employee in return for services is taxable income to the employee.
• Exception:– Unless there is a specific Code
section the exempts it from being taxable income.
• The Catch:– When a Code provision exempts
something from income, it usually requires compliance with a number of requirements in return.
5
HIPAA Portability
• Unlike privacy and security, not all group health plans are subject to HIPAA Portability requirements.
• Analysis• Is it a group health plan?– Broadly defined– Employer sponsored plan that
provides medical benefits– HSA is not group health plan
Excepted status is important because dictates application of other requirements, including many requirements under Health Care Reform.
6
HIPAA Portability
• Does a listed exception apply?– Retiree only plan
• Fewer than 2 current employees
– Health FSA• Maximum benefit does not exceed two times
salary reduction or if greater salary reductions plus $500; and employer offers another plan that is subject to HIPAA Portability (e.g., major medical)
• Most are excepted
– HRAs• To be excepted, must meet Health FSA
requirements above• Most are not excepted and must comply with
HIPAA Portability
– Stand alone dental; stand alone vision• Separate policy if insured• Not integral if self-insured (e.g., separate
election, separate premium)
7
HIPAA Portability
– Long Term Care Coverage• Excepted if under separate policy or
not integral• Most falls within exception
– Wellness and EAP• Not unless another exception applies• Most are not excepted and must
comply with HIPAA Portability
– Blanket exceptions:• Independent • Non coordinated• Supplemental (special rules)
– Examples: accident coverage, auto insurance, work comp., specified disease; fixed indemnity
8
Goal
• Refresh regarding methods– Similarities– Differences
• Update– “New” ways they are being used– Health Care Reform
9
Today’s Agenda
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
10
HEALTH REIMBURSEMENT ARRANGEMENT
PEHP PMA
VEBAHRA
ICMA
America’s VEBA
MSA
PRAMSRS-HCSP
REBA
PSA
VEMA
PEBSCO
All versions of the same thing…HRA
RHSA
11
Health Reimbursement Arrangement
• Self-insured medical plan under Code §§ 105, 106– First recognized by IRS in 2002– Written plan document– 213(d) medical expenses (including
medical premiums)• Limited scope• Post deductible• Tied to major medical
12
Health Reimbursement Arrangement– Expenses of employees (including
former); spouse (DOMA); dependents
– Claims substantiation and adjudication• Independent third party substantiation• Claimant representations• Third party adjudication• Ordering rules• Mutual exclusivity
13
Health Reimbursement Arrangement
• Nondiscrimination testing– Bargained– Non-bargained• Highly compensated individual• Eligibility• Benefits
If you treat people differently…nondiscrimination issue.
14
Health Reimbursement Arrangement• Entirely employer funded– No choice to participate
• Nothing in return if waive• Exception
– No salary reduction• Not related to cafeteria plan• Exception
– No employee after-tax contribution– Conversion
• Mandated; set• NO CHOICE!
– Carryover from one year to the next year permitted
– Spend down permitted• Consider COBRA
15
Health Reimbursement Arrangement• Other Federal Laws– HIPAA Privacy/Security
• Covered entity• Business Associate• Policies and procedures
– HIPAA Portability• Most HRAs are subject
– COBRA– Bunch of others…
• USERRA• FMLA• GINA• WHCRA• NMHPA• Health Care Reform
16
Moving on…
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
17
HRAs: What’s New?
• New ways to use• New laws that impact –
Health Care Reform
18
HRAs to Pay Premiums
• Group medical premiums• Individual medical premiums• Ordering issues with cafeteria
plan ability to pay premiums pre-tax
• Actives; post employment (including retirees)
• Nondiscrimination testing– Just premiums– Premiums “plus”
19
HRAs for Wellness Credits
• Stand alone or enhancement to existing
• Additional contribution – employer contribution
• Nondiscrimination testing– Just premiums– Premiums “plus”
Note: Wellness maximum for standard based program increases to 30% for 2014.
20
HRAs Replacing Retiree Obligation
• Reduce OPEB impact• Still have implicit subsidy– Statutory obligation to make
available– Combined with actives until age 65
• But, not a contribution to cost element
21
Health Care Reform*
• Tax consequence of adult child (see handout)
• OTC (see handout)• W-2 reporting (later slide)• Cadillac tax (later slide)• PHSA benefit mandates
– Because generally not excepted from HIPAA Portability
– Substantive– Administrative
• Enhanced claims, appeals and external review (later slide)
• Uniform Summary of Benefits and Coverage• Auto enrollment
*not exhaustive
22
W-2 Reporting Requirement
• Effective 2012 (reported in 2013)• Aggregate cost of applicable
employer sponsored coverage• Excludable under Section 106 or
would be excludable if paid by the employer
• Any coverage that meets the definition of group health plan for COBRA, subject to certain exceptions
23
W-2 Reporting Requirement• Exceptions include– Long term care– Modified HIPAA Excepted Benefits Rule
• On site medical
– Stand alone vision, stand alone dental– Specified illness, fixed indemnity where
paid by employee on after tax basis– HSAs– Special rule for health FSAs
• First step: Identify your group health plans and identify which are excepted from HIPAA Portability
HRAs indefinitely excluded under interim guidance.
24
W-2 Reporting Requirement
• Just reporting• Transitional relief for employer
filing fewer than 250 Form W-2s for preceding calendar year
25
Cadillac Tax
• Effective 2018• 40% on amount in excess of threshold
– “Excess” – amount by which aggregate cost of employee’s applicable employer sponsored group health plan exceeds threshold
– Threshold – $10,200/$27,500 – Employee by employee– Monthly calculation
• Applicable employer sponsored group health plan– Made available to employee by employer– Excludable from gross income under 106
or would be if employer paid for it
26
Cadillac Tax
• Excluded from group health plan– Modified excepted from HIPAA
Portability rule– Does not exclude (i.e., includes) on-
site medical clinics • Aggregate– Determined by employer; allocated
by employer– Reported to HHS by employer– Insured group health plan paid by
insurance carrier– Self-insured group health plan paid
by plan administrator (e.g., employer)HRA contribution is included.
27
Enhanced Claims, Appeals, and External Review
• Effective: has been a moving target• Applies to group health plans not
excepted from HIPAA Portability– Special grandfathered plan rule
• Same as major medical coverage– Full and fair review– Claims and appeals
• Special rule regarding substantial compliance
– Time frames, notice requirements – Culturally and linguistically appropriate– External review for medical judgment
and rescissions; means contracting with IROs
Most HRAs are subject; future guidance excluding or modifying expected.
28
Next type of program…
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
29
HEALTH FLEXIBLE SPENDING ACCOUNTS
Flex Spending Account
Health FSA
Medical
reimbursement plan
FSA
Reimbursement
account
Health expense
account
All versions of the same thing…Health FSA
Unreimbursed Medical Account
30
Health Flexible Spending Account
• Self-insured medical plan under Code §§ 105, 106
• “Qualified benefit” for cafeteria plan under Code § 125
Section 125 Plan
EmployeeContribution
Health Flexible Spending Account
Group Medical Benefits
Dependent Care Expense
Reimbursement Plan
Group Dental Benefits
31
Health Flexible Spending Account• Self-insured medical plan under Code
§§ 105, 106• Written plan document– 213(d) medical expenses (no premiums,
no LTC, no HSA)• Limited scope• Post deductible• Tied to major medical
– Expenses for employees (including former); spouse (DOMA); dependents
– Claims substantiation and adjudication• Independent third party substantiation• Claimant representations• Third party adjudication• Ordering rules
32
Health Flexible Spending Account
• “Qualified benefit” under Code § 125– Salary reduction– Employer contributions (including
cash-in-lieu)– Irrevocable elections; limited
exceptions– Uniform coverage– Use it or lose it rule– No deferral of compensation
33
Health Flexible Spending Account
• Nondiscrimination testing– Two levels• Code § 105 – applies to component• Code § 125 – applies to overall
cafeteria plan
– Bargained– Non-bargained– Each has eligibility and benefits
tests• Key employee concentration test does
not apply to governmentals
– Each has own target group definition; not the same
34
Health Flexible Spending Account• Other Federal Laws– HIPAA Privacy/Security
• Covered entity• Business Associate• Policies and procedures
– HIPAA Portability• Most are excepted
– COBRA– Bunch of others…
• USERRA• FMLA• GINA• WHCRA• NMHPA• Health Care Reform
35
Moving on…
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
36
Health FSAs: What’s New?
• New ways to use• New laws that impact-
Health Care Reform
37
Working With Other Programs
• Coordinate with HRA that only pays premiums– Premiums paid through HRA– “Plus” paid through health FSA
• Allowing “employee only” option– Does not impact spouse or
dependents HSA contribution eligibility
• Wellness credits but watch HIPAA Portability
38
Health Care Reform
• Tax consequence of adult child• OTC• $2,500 maximum salary reduction (later slide) • W-2 reporting• Cadillac tax• PHSA benefits mandates
– Substantive– Administrative
• Enhanced claims regulations• External review• Uniform Summary of Benefits and Coverage• Auto enrollment• Cadillac tax• Preventive care• Annual and lifetime maximums
Note: Most cases do not apply because generally excepted from HIPAA Portability.
39
$2,500 Salary Reduction Maximum• Effective 2013• Just health FSAs• Previously no statutory maximum• True employer contributions should be
outside– No cash out available– Watch out for HIPAA Portability
• Flat dollar amount– Not like dependent care FSA limit
• Per participant; family status irrelevant• No combination with spouse• No coordination or offset with available tax
credit
– Not indexed for inflation– Aggregate for employer
40
Next type of program…
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
41
HEALTH SAVINGS ACCOUNTS
It is what it is!!!
42
Health Savings Account
• First recognized by IRS in 2003• Not group health plan– Not COBRA
• Exists under § 223 of the Code• Often part of cafeteria plan under
§ 125 of the Code– Employee contributions– Employer contributions (including
wellness credits)
43
Health Savings Account
• Tax favored “IRA-type” accounts– Designed to accumulate– No forfeitures– Self-adjudicated– To beneficiary upon death
• Separate trustee• Invested; tax-free earnings• Limited employer involvement
– Can’t limit access– Can’t limit distributions
• Strategically implement– No mid year– Coordinate with other programs
• Two part analysis– Contributions in– Distributions out
44
HSA Contributions In
• Must be “eligible” for HSA contribution
• Monthly determination• Subject to statutory maximums
per year– Special rules if become eligible
during a year• Catch up contributions for those
over 55• Employer reports on W-2, Box 12,
Code W
45
HSA Contributions In
• Must be covered by “qualified high deductible health plan”– Comprehensive health plan meeting
specific statutory requirements• Deductible• Out of pocket maximum
– First dollar preventive– Prescription drugs subject to deductible
• Monthly determination
46
HSA Contributions In
• Must not be covered by “other coverage” unless “permitted”
• Other coverage is coverage that pays an expense prior to the satisfaction of the high deductible under the qualified high deductible health plan– Includes (i.e., bad other coverage) • Regular health FSA• Regular HRA• Coverage through spouse • Coverage through employer • Outside comprehensive individual
coverage
47
HSA Contributions In
– Permitted (i.e., not bad other coverage)• Disease specific• Indemnity• Dental, vision• Prescription discount cards• Supplemental• Most EAPs and wellness programs• Limited scope health FSA• Limited scope HRA• Post deductible HRA
• Cannot be covered under Medicare
48
HSA Distributions Out
• Distribution for anything • Not required to be covered under
qualified high deductible health plan• Taxable unless a medical expense for
accountholder, spouse (DOMA), dependent– Distribution amount as taxable income– Excise tax too– No exceptions for inadvertent– “Medical expense”
• Section 213(d) but • Limited insurance premiums
– Long term care insurance– COBRA– While receiving unemployment compensation– Certain premiums for retirees (must be age 65 or
over)
49
Moving on…
Code § Review What’s New
Health Reimbursement Arrangement
HRA 105
Health Flexible Spending Account
Health FSA 105
Health Savings AccountHSA
223
50
HSAs: What’s New?
Health Care Reform• OTC• Non-medical penalty to 20%
51
Questions
52
Thank you
• Darcy L. HitesmanHitesman & Wold, P.A.12900 – 63rd Avenue NorthMaple Grove, MN 55369763-503-6620
• Visit our website to register to receive our informational Client Alerts! www.HitesmanLaw.com