Legal Compliance Issues for Health Benefit Cards

1
Legal Compliance Issues for Health Benefit Cards

• Presented by
• John Hickman, Alston Bird, LLP
• jhickman_at_alston.com

2
Health Benefit Card Key Compliance Issues

• Prohibited Transaction Issues
• IRS Health Benefit card Guidance
• Notice 2006-69

3
Prohibited Transaction Issues

• Code prohibits certain transactions involving HSA
  between fiduciary and disqualified person
  (aka DP)
• Code Section 4975
• ERISA Section 406 (if ERISA applies)
• Administered by DOL (even if ERISA does not
  apply)
• Consequences for DP other than accountholder
• (Code) Excise Tax for non-compliance
• (ERISA) Equitable remedies
• Consequences for Accountholder
• HSA ceases to be an HSA under Code Section 223.

4
Prohibited Transaction Issues

• Who is a fiduciary?
• HSA Accountholder
• Trustee or any other person with discretionary
  authority over management and/or control over
  plan assets
• Person who renders investment advice for a fee
• Who is DP?
• Fiduciary
• Service Provider
• Employer of employees covered by HSA
• Family member of the above

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Prohibited Transaction Issues

• What are the prohibited transactions?
• Any direct or indirect
• Sale or exchange of property between HSA and DP
• Lending of money or other extension of credit
  between HSA and DP
• Furnishing of goods or services between the HSA
  and DP
• Transfer or use of HSA income or plan assets by
  DP
• Fiduciary deals with income or assets for his/her
  own interest
• Receipt of consideration by fiduciary for
  personal account from a party dealing with the
  HSA income or assets

6
Prohibited Transaction Issues

• Identifying PTs
• Must have right players
• Fiduciary
• DP
• Generally transaction must involve HSA assets
  (but not always)
• E.g. compensation to service providers
• Rule of Thumb if DP receives compensation with
  respect to a transaction involving the HSA,
  analysis is required.

7
Prohibited Transaction Issues

• Exceptions to Prohibited Transaction Rules
• Certain types of loans
• Reasonable and necessary services (the service
  provider exception)
• Ancillary services by a bank to the extent
  certain conditions are met
• Investment of HSA assets in all or part of the
  assets in deposits that bear reasonable rate of
  interest in a bank
• No exceptions for fiduciary transactions
• Independent fiduciary must approve transaction

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Prohibited Transaction Issues

• One DOL Opinion on HSAs on point
• DOL Adv. Op. 2004-09A
• Trustee deposits 100 in account for setting up
  HSA with trustee
• What if 100 given directly to accountholder?
• IRA Guidance is helpful
• PTE 93-1 and 93-33
• PBM Case
• Nationwide (12b-1 Fee) Case

9
Prohibited Transaction Issues

• Other situations in which PT might occur
• Retention of card interchange fees by trustee who
  also issues card
• Receipt of 12b-1 fees from investment funds
• Receipt of commissions or finder fees by
  service provider from another service provider
• Choosing investment management company owned by
  fiduciary or family member of fiduciary
• Inducements offered to accountholder
• Free services
• Incentives/rebates
• Credit extension

10
Electronic Payment Card Guidance
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Electronic Payment Card Guidance

• Revenue Ruling 2003-43
• First piece of guidance on use of electronic
  payment card with medical reimbursement
  arrangements
• Guidance needed to reconcile general rule that
  substantiation must be provided prior to making
  reimbursement
• Established restrictive parameters for card use
  to limit situations in which card was used for
  non-medical
• Notice 2006-69
• Clarifies rules established by Rev. Rul. 2003-43

12
Electronic Payment Card Guidance

• Revenue Ruling 2003-43 parameters
• Swipe privilege limited to health care providers
• Other specifications
• Type of Card
• Available balance linked to FSA/HRA balance
• Substantiation Requirements
• Auto adjudication (3 categories)
• Fall-out claims/Pay and chase

13
Electronic Payment Card Guidance

• Rev. Rul. 2003-43 requirements (cont)
• Certification Prior to Enrollment and Annually
• Participant enrollment form language required
• Re-affirmation Upon Swipe
• Language on back of card
• Sufficiency of cardholder agreement
• Suspension of Swipe Privilege if Abuse
• Participant Required to Retain Substantiation
• All swipes
• Duration ?

14
Electronic Payment Card Guidance

• Revenue Ruling 2003-43 requirements (cont)
• Three Auto-adjudication Categories for Merchants
  with Health Care MCC
• Copay Match (generally network claims)
• Match of copay
• Plan participant specific
• Recurring Claim (after initial paper claim)
• Recurrence as to amount, provider, time period
• Real Time Match
• Real time verification via (electronic, fax, etc)

15
Electronic Payment Card Guidance

• Clarifications made by 2006-69-Auto adjudication
• Co-pay match
• Multiple of co-pay or combination of co-pays for
  single benefit with variable co-pays
• Amount cannot exceed 5 times co-pay (or if
  variable co-pay-5 times greatest co-pay amount
  for single benefit)
• Must be co-pay of specific employee/cardholder
• TPA/Employer must certify co-pay
• Spouse/dependent co-pays not allowed
• Transaction must originate with health care
  provider (i.e. merchant with a health care
  related merchant category code)
• If amount exceeds maximum amount, must
  substantiate entire expense

16
Electronic Payment Card Guidance

• Clarifications made by 2006-69-Auto-Adjudication
  (cont)
• Inventory Information Approval System
• Merchant approves expense at point of sale from
  pre-approved list
• Card use is restricted to eligible expense amount
• Appropriate data is collected and maintained
• Identity of individual
• Nature of expense
• Amount incurred
• Date incurred
• Data can be sent to employer/administrator at POS
  or at later date OR just made accessible at later
  date e.g., in event of IRS audit
• Contrast with real time under 2004-43
• The Good health care MCC not required
• The Bad Claims level data must be accessible
• The Ugly Coordination between retailers and
  TPAs

17
Electronic Payment Card Guidance

• Clarifications made by 2006-69-Auto-Adjudication
  (cont)
• Inventory Information Approval System (cont)
• IRS clarifies that card may be used by merchants
  with no health care merchant category code so
  long as they utilize the inventory information
  approval system.
• Impacts big retail centers (discount and grocery
  stores)
• Impacts current card processing procedures

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Other Guidance in 2006-69

• Confirms that EOB roll-over does not require
  additional participant certification
• Confirms that original auto-adjudication
  categories limited to health care MCC
• Confirms that pay and chase limited to four
  auto-adjudication categories
• Confirms that self-substantiation and sampling
  not permitted
• Confirms that penalty for non-compliance is all
  reimbursements (even those properly
  substantiated) may be taxed

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Action Items What Were They Thinking ?

• Evaluate current system
• Do funds flow BEFORE adjudication?
• If so, does your system fit one of four
  recognized categories
• Co-pay match at non-health care MCC does not work
• Can MCCs be expanded?
• Can claims-level detail be maintained? By whom ?
• Could there be other real-time adjudication
  techniques?
• Action Plan
• Communication to employers
• Communication to participants