HRA FSA HSA 101

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HRA / FSA / HSA 101

• Presented by Doug Grucza
• 
  Regional Sales Manager
  
  
  EBS-RMSCO, Inc.
• 
  November 18, 2008

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HEALTH REIMBURSEMENT ACCOUNTS (HRA)
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HEALTH REIMBURSEMENT ACCOUNT (HRA)

• An HRA is unfunded Benefit
• Must be 100 Employer funded and to avoid Trust
  requirements paid from ER General Assets.
• Employee Contributions are not allowed
• An HRA cannot be offered directly or indirectly
  through a Cafeteria Compensation Plan
• Employee Accounts for Bookkeeping purposes only.

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HRA Plan Design Options

• Option 1
• Limit expenses to those that the employer only
  wants to cover
• Example for medical plan.
• Plan would reimburse co-pays, deductibles,
  co-insurance payments

• Option 2
• Reimburse all Section 213 expenses Medical,
  Dental, Vision, RX and OTC

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Eligibility Participation Rules Who is
Eligible/Excluded (Standard HRA)

• Safe Harbor Rules
• - Who can be excluded under SHR
• - Employees with less than 3 years service
• - Employees who have not attained age 25
• - Part-time or Seasonal employees
• - Collectively bargained employees
• - Non-resident aliens with no US source of
• income.
• If plan eligibility stays within above parameters
  no discrimination issue.

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Non-Safe Harbor Eligibility

• Excluding employees outside of SHR will require
  testing and passing Alternate Tests.
• Result of Discriminatory Plan
• HCEs lose Tax-favored treatment of benefits
• Will be required to re-file taxes pay
  associated late taxes and penalties!!
• Definition of HCEs for Section 105(h)
• Top 25 of Employees by earnings

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HRA and COBRA

• HRAs are subject to COBRA, just as a medical or
  dental plan in type, election length of
  coverage available.
• Where coverage includes spouse/dependents and QE
  results in more than one family unit, each unit
  gets full benefit option (not 50/50)
• If QB elects COBRA, he/she continues to receive
  accrual amount as long as Premium is paid.

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How do you determine the COBRA Premium for HRA?
Success usually comes to those who are too busy
to be looking for it.
H. Thoreau

• -Definition of Applicable Premium is the cost
  to the plan of providing coverage to similarly
  situated employees that have not experienced a
  QE. The premium must be determined prior to each
  12 month determination period.
• Actuarial Method
• Past Cost Method
• Safe Harbor definition Equal Treatment

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HRA and HIPAA

• An HRA will generally be a Group Health Plan
  and is subject to HIPAA portability
  non-discrimination rules
• Coordination of Benefits By code order is HRA
  before FSA. (may be issue for mid-year plan)
• Run-Out Period Period of time for submitting a
  claim after participation in plan ends.
• Form 5500 Required If have 100 or more
  participants.

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FLEXIBLE SPENDING PLAN (FSA)
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Flexible Spending Accounts (FSA)

• A great way for employers and employees to save
  money on their health care expenses
• Employees save all payroll taxation (Federal,
  State and FICA.
• Employers save the matching FICA
• Use it or Lose it Rule Employees must use funds
  through out plan year or forfeit remaining
  balances to Employer.
• The IRS adopted a 2.5 month grace period to carry
  forward previous years balance. The group must
  select.

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TYPES OF ACCOUNTS

• Pre Tax Premium Plans Employees can pay their
  portion of group sponsored premiums pre-tax.
• Medical Reimbursement Account Employees can set
  aside monies or employer can fund monies to pay
  for the out of pocket expenses that the employee
  or tax dependents go through

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TYPES OF ACCOUNTS (cont)

• Dependent Day Care Account- An account where
  employee can set aside monies pre-tax to pay for
  Day Care Expenses up the IRS limit of 5000.00.
• Employee saves all payroll taxation which in turn
  may be greater then the Federal Tax Credit on
  1040s.

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FSA DEBIT CARD

• A way for employees to pay for Flexible Spending
  Account (FSA) expenses.
• Utilizes MCC (Merchant Category Code) codes to
  ensure that the card ONLY works at eligible FSA
  locations
• Smart card operating on the existing MasterCard
  or VSA network
• Swipe of the card sends information to the
  administrator and serves as the electronic claim
  form

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Why use an FSA credit card?

• Cardholders (Employees)
• No more twice out of pocket (cash at point of
  service AND payroll deduction)
• Virtually eliminates claim forms waiting for
  reimbursement checks
• Employer Groups
• Increases FSA enrollment (32)
• Increases FSA contributions (27)
• Increases employee satisfaction
• A free benefit to provide to employees due to
  increased FICA savings
• According to mbi statistics (www.medibank.com/gro
  up/testimonials.htm)
• EBS client results have been similar

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HEALTH SAVINGS ACCOUNTS (HSA)
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Health Savings Accounts (HSA)

• Part of the Medicare Reform Bill
• Permanent federal law effective January 1, 2004
• Signed into law by President Bush on December 8,
  2003

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What is a HSA?

• Allows individuals to put away tax-free dollars
  that are used to pay for qualified medical
  expenses
• Must be combined with a High Deductible Health
  plan (HDHP)

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HSA maximum contributions for 2008

• Individuals 2,900 Regardless of Deductible
• Family 5,800 Regardless of Deductible
• Contributions are NOT pro-rated by the amount of
  months your HDHP was effective.
• No limits on growth of an HSA.

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CATCH UP CONTRIBUTIONS

• Catch up contributions
• Allowed for individuals age 55 to Medicare age
  (65)
• Additional amount of 900 per individual in 2008.
• Pro-rated by effective date of Insurance plan,
  not DOB.
• Increases 100 per year until it reaches 1,000
  in 2009

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Health Savings AccountTax Benefits

• Contributions are tax-deductible going in
• Interest income grows tax-free
• Qualified withdrawals are tax-free coming out

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Qualified Medical Expenses

• HSA distributions are tax-free if they are used
  to pay for qualified medical expenses, such as
• Amounts paid for the diagnosis, cure, treatment
  or prevention of disease
• Prescription drugs
• Qualified long-term care services and long-term
  care insurance
• Continuation coverage required by Federal Law
  (i.e., COBRA)
• Health insurance for the unemployed
• Medicare Expenses (but not Medigap)
• Retiree Health expenses for individuals age 65
  and older

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Can Individuals use the account to pay for
anything else?

• HSA's can be used to pay for medical expenses not
  covered by the employees health plan.
• Typical expenses include vision, dental and
  over-the-counter medications as long as
  prescribed by a physician.
• Employees must keep a copy of all receipts for
  IRS reporting.

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Non-Qualified Medical Expenses

• Distributions made for any non-qualified medical
  expense are subject to income tax and 10
  penalty.
• The 10 penalty is waived in the case of death or
  disability or once the individual reaches age 65.

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What happens to money left at the end of the
year?

• The money in the HSA belongs to the employee.
• HSA funds rollover from year to year, earning
  interest tax-free and continue to accumulate for
  future years.
• These funds may be used to pay for future medical
  expenses tax free or can be used to supplement
  income at age 65 tax-deferred.

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What happens to the money if the employee changes
employment?

• Funds remaining in the account are employee
  owned. Funds can be used to pay for future
  medical expenses or used to supplement income at
  retirement.
• Account will remain open until funds are
  exhausted and account is closed. Additional
  contributions may be made as long as the
  accountholder has obtained the necessary HDHP.

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HSA Ownership Upon Death

• Upon death, HSA ownership may transfer to a
  spouse on a tax-free basis. All other transfers
  result in a taxable event.

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How does my FSA with an HSA work?

• Your FSA can still be used for expenses not
  covered under your HDHP i.e. Dental, Vision and
  Childcare. It is now a Limited FSA.
• Once your deductible has been satisfied, FSA
  funds may be used to pay for expenses incurred
  under the medical plan.

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Questions and Answers
Never tell people how to do things. Tell them
what to do and they will surprise you with their
ingenuity.
George Patton