Question MSA HRA/MERP FSA

Transcription

1 1 What are they? Section 105, 106, 104 Medical Expense Reimbursement plans. MERPs do not have rollover feature but Health Reimbursement Arrangements(HRAs). Section 125 for Flexible Spending Arrangements An MSA is a tax-exempt trust or custodial account established for the purpose of paying medical expenses in conjunction with a high-deductible health plan. An HRA "account" exists only on paper. The employer doesn't have to specifically set money aside for the employee, it reimburses you from its funds as you incur eligible expenses. A FSA is an account for the purpose of reimbursing expenses on a pre-tax basis. Most plans offer two types of accounts: Medical and Dependent Care 2 Other names? Medical Savings Account, Archer Medical Savings Account. Defined Contribution Health Plans, Personal Care Accounts, *Personal Spending Accounts, Health Reimbursement Arrangements. *(assumes interest will be gained and this could lead to DOL and other complications) IRS would like to see these as unfunded meaning they stay in the general assets of the business Health Care Spending Account, HFSA, Dependent Card FSA, Unreimbursed Medical Account, Cafeteria plan, Flexible Benefits Plan 3 Who owns the account? Employee Employer Employer. Although the plan is in the employees name the IRS views this as a trade off of salary and benefits thus is viewed as employer money 4 Who provides these accounts? Financial Institutions - Any insurance company or any bank can be a MSA trustee or custodian. In addition, any other persons already approved by the IRS to be trustees or custodians of IRAs are automatically approved to be MSA trustees or custodians. Persons other than banks, insurance companies, or previously approved IRA trustees or custodians may request approval to be a trustee or custodian in accordance with the procedures set forth in Treasury Regulation (e) (relating to IRA nonbank trustees). An HRA is not an "account" or trust that would be established through a bank or insurance company, but rather an unfunded employee benefit plan provided through an employer, whereby medical expenses are reimbursed from an employer's general assets. The employer may set up a bank account instead of holding the money in assets. The employer must offer the plan and the employees can elect voluntarily to participate. Some accounts can be a default enrollment for example if the employee did not elect a certain benefit then the employee could automatically be enrolled in the lessor benefit. 5 Who is eligible? Self-employed persons and businesses with 50 or fewer employees. Current and former employees, their spouses and dependents, and the spouses and dependents of deceased employees. Other than the self-employed, there are no restrictions on group size. Plan document will determine the extent of employee involvement All corporations can offer an FSA option to employees with no restrictions on group size. Group size may be a factor in the non-discrimination tests. However, Sub S owners above 2% cannot particpate. See section 1372 Stock Attribution rules. Sole Proprietors and Parnterships (LLP, LLC) cannot participate in the benefit however the plan can be offered to employees. If the spouse of one of the latter two is a bonafide employee the spouse may participate thus the employer can benefit through their family 6 What tax bills/laws affect the account? Internal Revenue Code section 220 (b)(5)(b) Internal Revenue Code section 408(n) Senate Bill S1067 House Bill HR1524 Revenue Ruling IRS tice Section 105, 106, and 104 Section 125 primarily initiates the benefits however several regualtions can be added to create a menu of benefits. 79 group term life, 104&106 for insurance premiums, 129 for Dependent Care, Rev Ruling for individually paid non group insurance, to name a few

2 7 When was this type of account started? January 1, authorized by the Health Insurance Portability and Accountability Act of HRA:July of 2002 MERPs have been around for 25 years 1978 modified 83,84,86,89, Must be paired with a highdeductible health plan? but should be. This is fantastic employee benefit that truly allows employers to allow employees to be consumers of health care. For example the employer could buy a $ deduct plan and "buy back" the deductible for the employee to $500. With an employer of 20 that would leave an "exposure" of 1500x20 employees. $30,000. The employer could tell the employees as benefit design that depending on what is left from the $30,000 the employer may give money back, or offset other costs such as premiums for next year, deductible lowering etc. 9 Are there limits on plan levels (i.e., deductible, OOP limits, etc.)? Deductible: $1,650 - $2,500 individual/$3,300 - $4,950 family for 2002 Out-of-pocket: $3,200 individual/$5,850 family set by the plan document or by the employees salary or section Can it stand alone without a health insurance plan? See question 8 Absolutely 11 How do Employers and/or Employees establish accounts? The employee must set up the account with a MSA administrator; first step, fill out an application. 1. Employer should have written plan 2. Possible non discrimination tests 3. Limits and plan design should be figured in some form of document such as a Summary Plan Description (very important if there are more than 100 participants) 4. There are other factors that may need to be considered as these regulations unfold The employer must offer the plan and the employees can elect voluntarily to participate. The employer must have a written plan and follow the risk shifting of section Who can contribute? Employee and employer, but both cannot contribute in the same year. Employer only Employee and employer

3 13 How are contributions made and how can claims be paid? Contributions to an MSA can be made in cash in a lump sum at the beginning of the year or throughout the year. Lump Sum or Payroll Period to Payroll Period Salary deferral or employer contributions. Claims are paid up front for health care but not for daycare. See section Are there annual limits on contributions? Individual: 65% of deductible Family: 75% of deductible N0 unless set by plan document Medical: set by document Dependent Care: Minimum n/a, Maximum $5,000 unless filing married seperately is $2500 per filer 15 What are the tax implications? Employee contributions are deductible in computing adjusted gross income and are deductible whether or not the individual itemizes deductions. Employer Contributions are excludable from gross income, are not subject to withholding for income tax, and are not subject to other employment taxes. Earnings: Earnings on amounts in an MSA are not taxable prior to distribution from the MSA. The HRA and MERP are neither taxed to the employee or employer. If the employee or employer uses the fund to reimburse for expenses not related to section 213 IRC the plan could face tax consequences. Employee: An FSA reduces the employee's taxable income. Employer: Affects FICA 16 How are contributions taxed (i.e., pre or post)? Post t applicable because employee's cannot contribute. Pre 17 What is covered? Medical care as described under Section 213 of the tax code. Medical expenses in Section 213 of the tax code, including certain premium payments. Medical FSA: Medical care as described under Section 213 of the tax code; including eligible dental, vision, and prescription expenses. Dependent FSA: Dependent care while at work 18 What is not covered? Medical care as described under Section 213 of the tax code. See section 213 guide publication called IRS Publication 502 Medical and dental premiums in addition to exclusions under Section 213.

4 19 How do I get money out to pay medical expenses? Check, Debit Card, and some use Vouchers (send the bill to the administrator and they will pay the amount from the account and sent you a check) Submit a claim form to your employer or valid TPA. Claims need to have the same substantiation applied from section regulations. Employers are discouraged from administering these plans due to the possible criminal implications of HIPAA Claim form and sometimes a debit card can be used. 20 Can the funds be used for expenses other than health care?, but doing so will trigger a tax penalty Depends on the account selected. Daycare can be only used for Daycare and Health only for health. cross over of account 21 Can you access your account when you leave your job? Maybe, depends on whether the plan document has made provision for this there are several options 22 Does the balance carry-over year-toyear? Current and former employees, their spouses and dependents, and the spouses and dependents of deceased employees. Other than the self-employed, there are no restrictions on group size. Plan document will determine the extent of employee involvement, subject to the "use it or lose it" rule. 23 Can unused funds be rolled over when the employee leaves their job?, plan document will determine 24 Must the maximum amount of reimbursement permitted under the arrangement be available at all times?, the employer can set up the HRA however they want to. The employer can do monthly credits and say that the balance can only be used as it accrues., if you have a claim early in the year, the plan will pay the entire claim up to your annual maximum election.

5 25 Can the funds be used to pay health insurance premiums? Only COBRA premiums, qualified long-term contract premiums and health insurance premiums for coverage while receiving unemployment benefits., they can use to pay for current coverage, COBRA coverage, or retiree coverage, and long term care. See section How are distributions taxed? All non-medical distributions are included in ordinary income for tax purposes. Distributions used for nonmedical expenses or medical expenses when not covered by a high-deductible health plan are subject to an additional 15 percent tax. However, if distributions that are included in gross income are made after the account holder turns age 65, becomes disabled or dies, the additional 15 percent tax does not apply. They aren't, since they can only be used for medical expenses. They aren't, since they can only be used for medical expenses or related FSA accounts. 27 HIPAA Implications? Pilot project created under HIPPA An HRA is a group health plan and must follow the rules HIPAA applies to group health plans. Coming soon 28 ERISA Implications? ne t yet addressed ERISA is an issue if a Health FSA is present. 29 Pending Legislation? The MSA pilot project has been extended to December 31, Senate Bill S1067 House Bill HR1524 Maybe. The IRS just issued a ruling that unused balances can be carried over. H.R would repeal the "use it or lose it" rule, allowing up to $500 a year to be carried over to the next year, or be paid out to the employee. The bill also proposes that the distribution could be rolled over into certain retirement accounts or medical savings accounts. Dead as of July 2002