What Employers Need to Know About Account-Based Plans: Health FSAs, HSAs, HRAs, and QSEHRAs

Transcription

1 What Employers Need to Know About Account-Based Plans: Health FSAs, HSAs, HRAs, and QSEHRAs Presented by: Lorie Maring Phone: (404)

2 AGENDA Provide an overview of account-based plans. Describe how to administer account-based plans, including determining eligibility and making plan changes. Discuss employer considerations when an account-based plan (such as a health FSA) is a calendar year plan and the health plan is a non-calendar year plan. Describe the plan documents that would apply to each type of account-based plan. Discuss cafeteria plan permitted election change events. Identify which account-based plans are subject to COBRA and how COBRA is applied to these account-based plans. Discuss best practices when administering account-based plans.

3 Health Reimbursement Arrangements (HRAs) No employee contributions allowed More design flexibility Employers can pay claims out of general assets Can be offered with traditional, general-purpose health FSA coverage Subject to COBRA

4 Health Reimbursement Arrangements (HRAs) Cannot be offered under a cafeteria plan Subject to nondiscrimination testing under Code 105(h) More complex administration and compliance More complex health care reform compliance

5 Health Reimbursement Arrangements (HRAs) On October 12, 2017, President Trump signed an executive order directing the Treasury Department, DOL, and HHS to consider proposing regulatory changes that would liberalize HRA rules to: increase usability of HRAs expand employers ability to offer HRAs to employees, and allow HRAs to be used in conjunction with non-group coverage.

6 Health Flexible Spending Arrangements (Health FSAs) Subject to use-or-lose restrictions Can be funded by employer and employee Subject to nondiscrimination rules Subject to uniform coverage Subject to 125 change in status rules Subject to COBRA special rules

7 Health Flexible Spending Arrangements (Health FSAs) Cannot be used to fund retiree medical expenses Generally cannot be offered with an HSA Can be offered with an HRA Less complex health care reform compliance

8 Health Flexible Spending Arrangements (Health FSAs) Under new FSA rules, employees in 2018 may give an extra $50 to their employee s health FSA for a total of $2,650. Limits for dependent care FSAs remain unchanged at $5,000.

9 What Is It? It s a personal bank account allowing individuals to save and pay for covered health care services and qualified medical expenses. It s a bookkeeping account funded with employer general assets to help employees pay for covered health care services and eligible medical expenses. It s a bookkeeping account funded with employer general assets to help pay for covered health care services and eligible medical expenses.

10 Who contributes? HSA holder or any other person (including holder's employer or family member). Employer only (except for COBRA premiums and possibly other employee after-tax contributions). Employer or employee.

11 Are self-employed individuals (including sole proprietors, partners in a partnership, and more-than-2% shareholders in a Subchapter S corporation) eligible? Yes. But they will not be eligible to participate in a cafeteria plan used to fund HSAs in the workplace. No. No.

12 Who is eligible? Any individual who is covered under an HDHP (as defined in IRC Section 223) is not entitled to Medicare, and cannot be claimed as a tax dependent. With certain exceptions, the individual cannot have any non-hdhp health coverage. Any employee, subject to employer-designed exclusions. Eligibility may or may not be tied to HDHC. Any employee, subject to employer-designed exclusions

13 HSA/HDHP Coordination To be eligible for an HSA, the individual must enroll in an HDHP. Individuals may not contribute to an HSA if they: are enrolled in Medicare, are covered by another health care plan that is not an HDHP, can be claimed as a dependent on someone else's tax return, are enrolled in a general Health Care Flexible Spending Account (or covered by a spouse's FSA), are covered by a non-hdhp such as TRICARE and TRICARE For Life, or are covered by VA benefits and have used VA medical services within the previous 3 months.

14 HSA/HDHP Coordination Coverage allowed (must be excepted benefits): Accident Disability Dental care Vision care Long-term care Specified disease or illness Insurance that pays a fixed amount per day of hospitalization Limited HCFSA

15 HSA/HDHP Coordination Coverage not allowed: General Health Care FSA or a Spouse's FSA Medical coverage by a non-hdhp TRICARE or TRICARE For Life Any VA benefits used within previous 3 months Part A and/or Part B Medicare

16 HRA/HDHP Coordination Significant differences from HSA/HDHP such as: HDHC coverage with an HRA does not need to qualify as HSA-eligible HDHP coverage under Code 223. The HDHC deductible is not required to be within the range prescribed by Code 223 for an HSA+HDHP. Unlike HSAs, which do not have an independent claims adjudication requirement, no reimbursements can be made under an HRA (or a health FSA) without independent claims adjudication. Employee contributions cannot be made to an HRA on a pre-tax salary reduction or other tax-advantaged basis, while HSAs may be funded through deductible employee contributions.

17 Is there a limit on funding? Yes, and applies to the individual HSA account holder on the basis of his or her taxable year (i.e. calendar year). The HSA contribution limits do not apply to the individual on the basis of the plan year of the HDHP in which he or she participates. No. Yes, apply to plan year of FSA (amount set each calendar year by IRS and applies based on first day of FSA plan year beginning in the calendar year)

18 Is funding with cafeteria plan salary reductions permitted? Yes, but limited. Not for HRA, but it is permitted for HDHC. Yes, but limited

19 What expenses are reimbursed? Otherwise unreimbursed IRC Section 213(d) medical expenses of account holder, spouse, and dependents incurred after HSA established, other than insurance premiums (with limited exceptions for COBRA coverage, long-term care insurance, health coverage while drawing unemployment compensation, and, if 65 or older, any health insurance except a Medicare supplemental policy). Otherwise unreimbursed IRC Section 213(d) medical expenses of employee, spouse, children under age 27 and dependents, incurred while coverage is in effect, including premiums for eligible health insurance and longterm care insurance, subject to employer-designed limitations. Cannot reimburse qualified longterm care services so long as the HRA is an FSA. Otherwise unreimbursed IRC Section 213(d) medical expenses of employee, spouse, children under age 27 and dependents, incurred during the coverage period.

20 Are distributions (or cash-outs) for nonmedical expenses permitted? Yes. Distributions cannot be restricted to pay or reimburse only qualified medical expenses. However, distributions for nonmedical expenses are taxable and subject to a 20% excise tax (certain exceptions apply e.g. After age 65). No. No.

21 Can funds be carried over to next year? Yes. Funds contributed will stay in until spent. Holder may save and use for retirement. Yes. Generally no, but may amend plans to allow carryover of up to $500, or a grace period of up to 2-1/2 months during which claims may be incurred but not both.

22 Must coverage be elected/provided for a full 12-month period, and are there prohibitions on midyear changes?? Not for an HSA. IRS guidance confirms that the 12-month coverage and election change rules do not apply even for HSAs offered through a cafeteria plan. Yes, for an HDHP funded through a cafeteria plan. Not for an HRA. Yes for HDHC funded through a cafeteria plan. Yes.

23 Do the uniform coverage rules apply, requiring the annual coverage amount to be available as of the first day of the plan year? No. But IRS guidance indicates that employers may choose to accelerate funding of HSA salary reduction elections under a cafeteria plan, or of employer HSA contributions outside of a cafeteria plan, so long as certain requirements are met. No. Coverage may be prorated by plan design (e.g., employee has $100 credited to a bookkeeping account each month). Yes.

24 Must the administrative year for the account-based plan be the same as the group health plan? No. But could create eligibility issues. No. But could create integration issues. No. But could create HDHP/HSA eligibility issues.

25 HRAs and HealthCare Reform HRAs are generally treated as GHPs for Health Care Reform SBCs, mandates, etc. (FSAs (excepted benefits) and HSAs exempt) Must be integrated with group health insurance no stand alone or individual policies Notice : An HRA covering fewer than 2 active employees may purchase individual policies (N/A to funds contributed while active ERs need to update plan docs) Grandfathered HRAs in effect before 1/1/14 are not required to be integrated, but may not purchase individual policies HRAs may no longer cover spouses or dependents not enrolled in ER s GHP (even if covered under spouse s GHP). Can cover EE, spouse and dependents all enrolled in spouse s plan. Transition relief available MEC reporting required for 2016 for spouse and dependents covered by HRA)

26 Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) Congress carved out an exception for certain small employer HRAs Allows eligible small employers to help employees purchase individual market major medical coverage and pay for certain other medical expenses using a stand-alone HRA Exempt from many of the group health plan requirements under the Code, ERISA, and the PHSA; not subject to COBRA Available only to small employers that both: 1) Are not ALEs subject to health care reform s employer shared responsibility provisions; and 2) Do not offer a group health plan to any of its employees Both determined on a controlled group basis

27 Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) May only pay or reimburse medical expenses after the employee provides proof of minimum essential coverage (MEC) Must be funded solely by the sponsoring employer; no salary reduction contributions are permitted Benefits are subject to statutory dollar limits (e.g. for 2018, limited to $5,050 for self-only coverage and $10,200 for family coverage) Cash-outs of unused amounts are not permitted (even on a taxable basis) Employee must substantiate the expense using methods similar to those for reimbursing expenses under a health FSA or an HRA Cannot impose a deductible or other cost-sharing requirements that must be met before reimbursements are made Subject to nondiscrimination and uniformity requirements

28 Can amounts that are unused at termination of active employment continue to be spent down? Yes. HSAs are nonforfeitable and portable. Yes. HRA can permit unused amounts to be used until depleted to pay for claims incurred after termination (COBRA may also apply). Generally no. Cannot use unused amounts to pay for claims incurred after termination (except as COBRA or a plan's grace period may allow).

29 To be reimbursable, must claims be incurred during current period of coverage? No. Distributions for qualifying medical expenses will be tax-free if incurred at any time after the HSA is established. State trust law determines when an HSA is established. Yes, but there's a big exception. Claims incurred but not reimbursed due to an insufficient HRA balance can be reimbursed in subsequent year if the individual was a participant when the claims were incurred and is still a participant. Yes.

30 Is expense substantiation required? Yes. Yes. Yes.

31 Is independent claims adjudication required? No. HSA account holder must retain records. Yes. Yes.

32 Can an individual participate in more than one of these vehicles at the same time? A traditional, general-purpose health FSA or HRA will make an individual ineligible for an HSA. But a specially designed health FSA or HRA will not prevent HSA eligibility. An employee who is covered by an HRA may also participate in a health FSA. A traditional, general-purpose HRA will make an individual ineligible for an HSA. But a limited-purpose HRA, a highdeductible HRA, a suspended HRA or a retirement HRA will not prevent HSA eligibility. An employee who is covered by a health FSA may also participate in an HRA. A traditional, general-purpose health FSA will make an individual ineligible for an HSA. But a limited-purpose health FSA or a high-deductible health FSA will not prevent HSA eligibility.

33 Are there ordering rules that apply? No. HRA or health FSA participants do not need to exhaust their HSAs before seeking payment or reimbursement through the HRA or health FSA. (Note: The box above describes the limited HRA or health FSA designs that do not interfere with HSA eligibility.) Cannot reimburse expenses that have been reimbursed elsewhere. Yes. Generally, health FSAs must be payors of last resort vis-a-vis an HRA. But HRAs and health FSAs can be drafted to require that the HRA pays only after health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere. Yes. Generally, health FSAs must be payors of last resort vis-a-vis an HRA. But HRAs and health FSAs can be drafted to require that the HRA pays only after health FSA amounts are exhausted. Cannot reimburse expenses that have been reimbursed elsewhere.

34 Do IRC Section 105(h) nondiscrimination requirements apply? No, for an HSA, but employer contributions made outside a cafeteria plan are subject to comparability requirements. Yes, for a self-insured HDHP. Yes. Yes.

35 Do IRC Section 125 nondiscrimination requirements apply? Yes, for an HSA offered under a cafeteria plan. No. HRAs cannot be offered under a cafeteria plan. But the nondiscrimination rules will apply to HDHC offered under a cafeteria plan. Yes.

36 Is a trust account required? Yes. No, not by the Code, but possibly by ERISA (e.g., unclear if trust required for COBRA premiums or any other after-tax contributions). No, not by the Code, but possibly by ERISA (no trust if health FSA complies with ERISA Tech. Rel , including that reimbursements are made directly out of the general assets of the employer).

37 May debit cards be used? Yes. Yes. Yes.

38 Is it an ERISA Plan? Generally no, unless employer takes action that triggers ERISA under DOL guidance. Employer contributions alone do not trigger ERISA. Yes, unless plan maintained by governmental entity or church (ERISA does not apply). Yes, unless plan maintained by governmental entity or church (ERISA does not apply).

39 Is it an ERISA Plan? Generally no, unless employer takes action that triggers ERISA under DOL guidance. Employer contributions alone do not trigger ERISA. Yes, unless plan maintained by governmental entity or church (ERISA does not apply). Yes, unless plan maintained by governmental entity or church (ERISA does not apply).

40 HSAs Under Voluntary Plan Safe Harbor Exemption DOL FABs and provide HSAs meeting Voluntary Plan Safe Harbor are Exempt from ERISA But - special rules for HSAs that allow certain practices that would otherwise be excessive employer involvement or endorsement such as: limiting the number of HSA providers that market their HSA products in the workplace, even by selecting a single HSA provider to which the employer will forward contributions; and providing employees with general information on the advisability of using an HSA in connection with the employer's HDHP.

41 Special HSA Exemption HSAs with employer contributions are exempt from ERISA if: HSA is completely voluntary on part of the employee; and Employer does not: limit the ability of eligible individuals to move funds to another HSA; impose conditions on payments from HSA funds beyond those permitted under the Code; influence investment decisions; represent that HSAs are ERISA plans; and receive any payment or compensation in connection with an HSA

42 Are there plan assets for ERISA purposes? Generally, no. But yes for an employer-sponsored HSA that is an ERISA plan (i.e., employer contributions and employees' pre-tax salary reductions would be plan assets). With no employee contributions, HRAs generally do not have plan assets so long as all reimbursements are paid directly out of general assets of the employer and not from a special fund segregated from the general assets of the employer. Yes. Even for plans that are treated as "unfunded" under ERISA Tech. Rel. 92-1, salary reduction amounts are plan assets for purposes of ERISA's exclusive benefit and fiduciary duty rules.

43 Is an ERISA Form 5500 required to be filed? Generally, no. Presumably yes for an employersponsored HSA that is an ERISA plan. But because HSAs are individual trusts or custodial accounts, it is uncertain how an employer would be required to comply with its Form 5500 obligation. Yes. Exception for small (fewer than 100 participants) unfunded plan. Yes. Exception for small (fewer than 100 participants) unfunded plan.

44 Do ERISA SPD and other disclosures, and adherence to ERISA's benefit claims procedures, apply? Generally, no. Yes for an employer-sponsored HSA that is an ERISA plan. How ERISA claims procedures would apply is uncertain since HSA claims are generally selfadjudicated. Yes. Yes.

45 Do ERISA fiduciary rules apply? Generally, no. Yes for an employersponsored HSA that is an ERISA plan. Yes. Yes.

46 Is a plan document required? Generally, no. Yes for an employer-sponsored HSA that is an ERISA plan. Yes. Yes.

47 Do HIPAA's portability, certificates of creditable coverage, and health status nondiscrimination provisions apply? Yes, for an HDHP and maybe for an employersponsored HSA that is an ERISA plan. Special rules apply to governmental plans and to church plans. Yes. Exception for HRAs that fall within the technical definition of a health FSA. Yes. Exception for most (not all) health FSAs funded with salary reductions(excepted benefit status).

48 Health FSA Excepted Benefit Status A health FSA is an excepted benefit if: The employer does not make any contributions to the FSA, or The employer makes a dollar-for-dollar match to the FSA, or The employer contributes no more than $500 to the FSA, and The employer offers other non-excepted medical benefits (such as group health coverage) to the class of employees who are eligible for the FSA.

49 Do HIPAA's privacy and security provisions apply? Yes, for an HDHP and for an employersponsored HSA that is an ERISA plan. Gray area for an HSA that is not an ERISA plan. Yes. Yes.

50 Does COBRA apply? HSA AHRA FSA Generally no, for HSAs. But there is some uncertainty as to whether ERISA's COBRA provisions may apply to an HSA that is an ERISA plan and whether PHSA's COBRA provisions may apply to HSAs sponsored by state and local government employers. Yes. Rarely, an HRA providing $500 in coverage will satisfy the terms of the special rule limiting COBRA obligations for qualifying health FSAs. Yes. But there is a special rule limiting COBRA obligations for qualifying health FSAs.

51 Special COBRA Rule for FSAs If an FSA satisfies all of the following criteria, the employer is not required to offer COBRA coverage to certain qualified beneficiaries, and may limit the duration of COBRA coverage for other qualified beneficiaries to the plan year in which the qualifying event occurs: The FSA is an excepted benefit ; and The maximum annual benefit available under the FSA is less than the maximum COBRA premium for a year. Often, this criterion is satisfied because the COBRA premium will either equal the maximum annual benefit or will be equal to 102 percent of the maximum annual benefit. If an FSA satisfies the three criteria outlined above, then (1) the employer is not required to offer COBRA coverage to qualified beneficiaries who have overspent their FSA accounts and (2) the employer must offer COBRA coverage to qualified beneficiaries who have underspent their FSA accounts, but the COBRA coverage may terminate at the end of the year in which the qualifying event occurs.

52 Are Creditable Coverage Disclosures Required Under Medicare Part D?? No. Yes. No.

53 Do the Medicare Secondary Payer (MSP) reporting rules apply? No. Yes. No.

54 Are Account Holders taxed? No. No federal or, in most instances, state income taxes on: Deposits you or others make to an HSA Money you spend from an HSA on qualified medical expenses Interest earned from an HSA if you put money into an HSA using pre-tax payroll deposits through your employer, you don t have to pay Social Security taxes on it either. No. No.

55 Are Account Holders taxed? No. No federal or, in most instances, state income taxes on: Deposits you or others make to an HSA Money you spend from an HSA on qualified medical expenses Interest earned from an HSA if you put money into an HSA using pre-tax payroll deposits through your employer, you don t have to pay Social Security taxes on it either. No. No.

56 Health Savings Accounts (HSAs) IRS released new guidance on March 5, 2018 reducing the 2018 HSA limit for family coverage to $6,850 (down from $6,900). The change is retroactive back to January 1, May affect current and future contributions to HSAs (e.g., those that have already fully contributed for 2018 may need to initiate corrective actions to remove excess contributions).

57 Health Savings Accounts (HSAs) Bipartisan HSA Improvement Act (House Bill 3/5/2018) Allows HSA plans to offer pre-deductible coverage of health services at onsite employee clinics. Allowing pre-deductible coverage for services and medication that manage chronic conditions. Permitting the use of HSA dollars toward wellness benefits, including exercise and other expenses associated with physical activity. Clarifying that employers can offer telemedicine Technical changes to correct the definition of dependents, streamline FSA conversion, and fix the prohibition on a spouse using an HSA.

58 Final Questions HRCI SHRM Presented by: Lorie Maring Phone: (404)

59 Thank You Presented by: Lorie Maring Phone: (404)