Carter's Benefits

eNewsletter Volume 4, Issue 10 October 2011

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Don't Forget to Review Your
POP (Premium Only Plans)

Annually you should review your Cafeteria plan (IRS Section 125 pre-tax document) also referred to as a POP or Premium Only Plan. You should review these for compliance. By following a few simple steps, you can avoid non compliance and problems down the road. In particular, if you are pre-taxing employee benefits, make sure to review the plan document at least annually or whenever a benefit change is made.

A good checklist for reviewing POP Plan Compliance is:

  • Can you produce the actual plan document?
  • Can you show evidence of annual non-discrimination testing?
  • Review your benefits listed in the plan document as being pre-taxed. Are they still accurate or have plan changes been made?
  • If changes have been made, adjust the plan document for accuracy.
  • Keep your plan documents and supporting information in a safe, yet readily available location.

These steps should be a part of your regular annual procedures.

For your convenience, we are providing a "Section 125 Compliance Guide" from our partners at AmeriFlex that is available here. If you have additional questions regarding employee benefit pre-taxing under IRS Section 125, we are here to help

Recent News

  1. Coordinating HSAs with FSAs and HRAs.
  2. IRS Reminds Participants That Plans Are Not Required to Reimburse All Eligible Medical Care Expenses.
  3. A historical index of HSA figures dating back to 2004 and current contribution limits.
  4. Premium Increases Over 10% Will Be Reviewed Under Healthcare Act.
  5. California Urged To Ban Insurance Companies' Requiring Data On Competitors' Bids.
  6. Obama Administration Asks Supreme Court To Rule On Health Reform.
  7. Consumer Reports Finds More People Putting Off Healthcare, Cutting Medication.
  8. More Companies Offer Health Savings Accounts.
  9. Most workers make mistakes on benefits coverage.
  10. Gallup Poll: Fewer Young Adults Uninsured Due To Health Reform.

Coordinating HSAs with FSAs and HRAs
(Compliance Alert) from our partner company WageWorks

In the race between all types of consumer-directed health plans it looks like Health Savings Accounts (HSAs) are becoming a real contender. Since first making its appearance in 2004 – HSAs were at first impossible to set up because the qualified High-Deductible Health Plan (HDHP) described by the Internal Revenue Service (IRS) did not exist.

Secondly, employers did not know they could offer Health Flexible Spending Accounts (HFSAs) and Health Reimbursement Arrangements (HRAs) along with an HSA.

Depending on employers' goals and objectives, they may desire to offer an HFSA plan or an HRA. This article will answer the question: How can an employer offer an HSA, a Health FSA and an HRA program and still comply with every law surrounding these benefits?

As just a little background, HSAs are individually-owned healthcare payment accounts that allow the participant to contribute untaxed dollars. Interest or dividends accumulate tax-free; and when an individual pays for qualified medical expenses, there will be no additional tax consequences.

In order to have an HSA, individuals must be covered by a qualified HDHP. The HDHP must satisfy minimum deductible amounts with certain out-of-pocket maximums. Account holders may not be covered by any other insurance plan that is not an HDHP or that covers benefits provided by the HDHP. Other insurance plans include a general-purpose Health FSA or HRA. And a spouse's coverage by a general-purpose Health FSA or HRA can also bar a participant from contributing to an HSA. But participants may obtain narrowly-defined "permitted insurance" or "permitted coverage" products, such as policies that provide dental, vision, accident, disability, and long-term care benefits. The HDHP, for non-grandfathered plans, also provide "preventive care" reimbursements that are below the minimum deductible amount or without a deductible.

This is a discussion of "other" insurance coverage. Specifically – health coverage provided through a Section 125 HFSA or an HRA and Limited-Purpose HFSAs and HRAs, Suspended HRAs, Post-Deductible HFSAs and HRAs and Retirement HRAs.

Limited-Purpose HFSA or HRA
In this program the HFSA and the HRA are limited to payment of only permitted coverage items like vision and dental expenses until the statutory minimum annual deductible is met. The limited-purpose HRA could also compensate for permitted insurance plans that cover a specific disease or illness or that provides a fixed amount per day of hospitalization.

This range of benefits does not breach the "no other insurance" rule of HSAs. It should also be noted that the limited-purpose programs could pay for preventive care before the statutory minimum annual deductible is satisfied. The definition of preventive care was described in IRS Notice 2004-23.

Suspended HRA
A suspended HRA is an employer-funded HRA that pays all qualified healthcare expenses for eligible employees. For an otherwise HSA-eligible employee, an election is made before the beginning of the HRA coverage period to forgo, or suspend, all payments from the plan that are not for permitted coverage, permitted insurance or preventive care expenses. Thus, barring reimbursement at any time of otherwise eligible expenses from the HRA and retaining entitlement to make tax-free contributions to the HSA.

The employer would continue to "fund" this employee's HRA account although the employee has elected to suspend full usage of the arrangement. When the employee ends the suspension period, they would no longer be eligible to make HSA contributions, because they are free to receive reimbursement of all healthcare expenses from the HRA.

Post-Deductible HFSA or HRA
With these benefits, the HFSA and HRA are also considered to be high-deductible insurance products. Remember the rule about no other insurance coverage? These HFSA/HRA plans won't kickoff until after the minimum deductible is met. Participant reimbursement from the HFSA or HRA doesn't have to wait until the HDHP's deductible amount is met, but the “minimum” deductible standard must be met. 

In addition, although the deductibles of the HDHP and the other coverage may be satisfied independently by separate expenses, no benefits may be paid before the minimum annual deductible is met, which is $1,200 for single coverage and $2,400 for family coverage in 2011.

Retirement HRA
The retirement HRA can accumulate funds during an employee's working years and make those dollars available to the individual upon retirement. It may not reimburse any healthcare expenses, except for permitted coverage, permitted insurance and preventive care expenses during an individual’s period of employment. When the retirement HRA begins to make reimbursements, the participant is ineligible to make further contributions to their HSA.

Mix and Match
Combinations of the above plans can also work. For instance, an employee could be covered by a limited-purpose HFSA and a retirement HRA and still be eligible to make contributions to an individual HSA arrangement.

Yes – you can have it all. Employers sometimes don't understand that they can and should have a general-purpose HFSA along with a limited-purpose HFSA and an HSA. Why would they want to do that? Some employees simply don't want to establish and maintain an HSA. They are familiar with how the HFSA works – it pays their large expenses even before they have made all their contributions for the year, unlike Health Saings Accounts, which limit distributions to amounts already accumulated. There are also extra tax forms to complete. So make sure your employers include the full range of benefits in their cafeteria plan, including a general-purpose HFSA and dependent care assistance account.

Contributions vs. Disbursements
Don't confuse being "eligible to make contributions" to an HSA with "eligible to receive payments" from the HSA. The HSA can pay for the qualified medical expenses of the account holder and his or her spouse, and dependents even though the account holder is no longer eligible to make contributions to the HSA. Another note - the spouse and dependents do not need to be covered by the underlying HDHP in order to have their healthcare expenses reimbursed from the HSA.

Employee Education
Employee education is a must when blending benefits with so many special rules. Start with the basic information about the employer's plans, and try to keep educational materials simple and to the point.

The information contained in this memo is not intended to be legal, accounting, or other professional advice. We assume no liability whatsoever in connection with its use, nor are these comments directed to specific situations

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IRS Reminds Participants That Plans Are Not Required to Reimburse All Eligible Medical Care Expenses.
Two recently released IRS information letters about medical care expenses emphasize that employer-sponsored plans such as health FSAs and HRAs are not required to pay or reimburse every item or service that qualifies as a medical care expense, and can limit payment or reimbursement to only certain expenses. One letter responds to a health FSA participant who asked whether hearing aid repair expenses are medical care expenses that can be reimbursed from a health FSA. The letter states that while these expenses qualify as medical care, whether they will be reimbursed depends on the rules of the participant’s health FSA. The letter also notes that the health FSA’s plan documents should identify the expenses that the plan will reimburse, and that unreimbursed medical care expenses can be deducted on the individual’s federal income tax return (to the extent that they exceed 7.5% of adjusted gross income).

The other letter responds to a participant who asked whether her “medical reimbursement account” (MRA) could reimburse an annual “medical concierge” fee that entitled her to heightened access to doctors, a comprehensive annual check-up, doctor visits of at least half an hour, and access to dieticians and exercise therapists. (Presumably, the MRA was either an HRA or a health FSA.) According to the letter, the MRA administrator had decided that the fee was not reimbursable. Without commenting on whether the fee would qualify as a medical care expense, the letter states that each plan can have its own rules as to which Code § 213(d) medical expenses it will reimburse and which are excluded from coverage.


IRS Letter 2011-0027 and IRS Letter 2011-0055

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A historical index of HSA figures dating back to 2004 Click here to view and current contribution limits.

2012 Health Savings Account Index Figures
 
2011
2012
Maximum contribution levels
Individual coverage
$3,050
$3,100
Family coverage
$6,150
$6,250
Catch-up contribution allowed for those 55 and over
$1,000
$1,000
Maximums for HDHP out-of-pocket expenses
Individual coverage
$5,950
$6,050
Family coverage
$11,900
$12,100

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Premium Increases Over 10% Will Be Reviewed Under Healthcare Act.
The AP (9/2) reports that under the Affordable Care Act, "whenever an insurer seeks a rate hike of 10 percent or more for individual and small-employer group coverage, it now must submit the plan for either a state or federal review of whether it's reasonable." While the review does not include the power to prevent the hike, "any increases will be posted along with an explanation for them on the website www.healthcare.gov." Health and Human Services Secretary Kathleen Sebelius "said in a statement Thursday that the new reviews 'will shed a bright light on the industry's behavior and drive market competition to lower costs.'"
        The Los Angeles Times (9/2, Levey) says that insurers must "post on their websites explanations of premium increases exceeding 10% and submit the hikes to state and federal regulators." It also points out that "federal regulators will handle insurance oversight in states where the administration has determined that state supervision is inadequate, including Alabama, Arizona, Louisiana, Missouri, Montana, Pennsylvania, Virginia and Wyoming." The story quotes Secretary Sebelius' statement as in the AP.
        Bloomberg News (9/2, Young) quotes Steve Larsen, director of the US Center for Consumer Information and Insurance Oversight, saying that "the oversight will 'shine a light on proposed double-digit increases' and tamp down coverage costs because health plans won't want to be seen raising prices more than 10 percent."
        The Hill (9/2, Baker) explains in its "Healthwatch" blog, "The reviews are designed to determine whether premiums are going up because of a rise in healthcare costs or because insurers are padding their profits."
        Modern Healthcare (9/2, Subscription Publication) explains further, "independent experts will study information about underlying costs trends in healthcare and will indicate when insurance companies raise their costs unjustly."

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California Urged To Ban Insurance Companies' Requiring Data On Competitors' Bids.
David Lazarus writes in his column for the Los Angeles Times (9/6) on the subject of health insurance premiums for companies. He explains that when a company seeks quotes on insurance rates, the other companies want to know what the cost of the existing policy would be and will not offer a quote unless that is disclosed. Lazarus says that "is an unfair and unreasonable practice that tips the scales too far on insurers' behalf." So, while "insurers should have access to relevant claims data ... lawmakers should prohibit the requesting of a rival's rates."

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Obama Administration Asks Supreme Court To Rule On Health Reform.
Print media provided heavy coverage of the Obama Administration's appeal of an Atlanta court's ruling against the healthcare law. Many sources said that the move indicates the Administration is confident that the Court will rule in its favor, while others highlighted the political risk inherent in the action. The AP (9/29, Sherman) reports, "Raising prospects for a major election-year ruling, the Obama administration launched its Supreme Court defense of its landmark health care overhaul Wednesday, appealing what it called a 'fundamentally flawed' appeals court decision that declared the law's central provision unconstitutional." The government "formally appealed a ruling by the federal appeals court in Atlanta that struck down the law's core requirement that individuals buy health insurance or pay a penalty beginning in 2014." The AP says that the law was "destined...for a high court showdown," and it is "sure to figure prominently in President Barack Obama's campaign for re-election next year."
        On its front page, the New York Times (9/29, A1, Liptak, Subscription Publication) reports, "The development, which came unexpectedly fast, makes it all but certain that the court will soon agree to hear one or more cases involving challenges to the law, with arguments by the spring and a decision by June, in time to land in the middle of the 2012 presidential campaign." In making this request, the Justice Department stated, "The department has consistently and successfully defended this law in several courts of appeals, and only the 11th Circuit Court of Appeals has ruled it unconstitutional. ... We believe the question is appropriate for review by the Supreme Court."
        The Washington Post (9/29, A1, Barnes) reports in a front-page article, "The administration said it was confident" the Affordable Care Act "would be upheld as a valid exercise of federal power, just as Social Security and the Civil Rights Act were." The ACA, "enacted when Democrats controlled both chambers of Congress, has roiled national politics and prompted calls for repeal from the Republican presidential candidates running to replace Obama." The Post says that the "political consequences of whether it is better or worse for Obama's reelection chances to have the case decided before the election have been debated with little consensus." Yet, "the administration put aside options that could have created a delay, and its petition Wednesday ensures a quicker decision by the court."
        USA Today (9/29, A1, Biskupic) reports on its front page that the Justice Department is appealing "a decision by an Atlanta-based appeals court that said the individual-insurance mandate went beyond Congress' power to regulate interstate commerce. The lawyers say that appeals court decision, which conflicts with two appeals court rulings rejecting challenges to the law, undermines federal efforts to tackle the 'crisis in the national health care market.'" In addition, the "administration said the appeals court ruling 'denies Congress the broad deference it is due...to address the nation's most pressing economic problems.'"
        The Wall Street Journal (9/29, Kendall, Meckler, Subscription Publication) says that the Administration's request lays to rest much conjecture about which strategies both sides would employ to secure a ruling in their favor. While the healthcare law has been described as President Obama's greatest accomplishment, it has received a lukewarm response from the public, and Republicans have vowed to repeal and replace it.
        Politico (9/29, Nather) says that this "could be one of the smartest political moves the Obama administration has made -- or a historic mistake that could kill not just the health care reform law but the president's chances for reelection, too." The Administration is "taking a huge political risk," but it "seems convinced that proceedings before the court will play out in its favor -- with a speedy vindication by the high court and a chance to settle all of the uncertainties so the law can finally move forward." Still, there are no assurances "that the court will agree to hear the case -- or issue a ruling quickly. If the justices want to avoid ruling during an election season, there are ways they can do it; they could deny certiorari, or they could punt, accepting the argument -- as one lower court did -- that it's premature to rule on key provisions of the law until they take effect in 2014."
        The Washington Times (9/29, Cunningham) reports that the Administration's action indicated that it has "confidence in its legal case." In fact, "White House spokeswoman Stephanie Cutter expressed certainty that the court would side with the administration on two key questions: whether Congress overstepped its constitutional authority by requiring individuals to purchase health insurance and whether the rest of the law can stand without the mandate." The Times adds, "Both the administration and the plaintiffs agree on something: Out of all five appellate decisions issued so far on the health care law, the ruling by the 11th Circuit offers the best vehicle for the Supreme Court to rule on the mandate and its so-called severability from the rest of the law."
        Bloomberg News (9/29, Stohr) reports, "The Supreme Court usually agrees to hear appeals when both sides in a dispute seek a hearing, particularly when the federal government is one of the litigants. The justices often take cases when federal appeals courts are divided on an issue, as they are over the health-care law." According to Gregory Katsas, an attorney for the National Federation of Independent Business, "The Supreme Court now effectively has to take the case."
        Further coverage appeared in the Los Angeles Times (9/29, Savage), Financial Times (9/29, Kirchgaessner, Subscription Publication), USA Today (9/29, Jackson) "The Oval" blog, Reuters (9/29, Vicini), AFP (9/29, Collinson), the National Journal (9/29, Wilson, Subscription Publication), The Hill (9/29, Baker) "Healthwatch" blog, TPM Media (9/29, Beutler), and CQ (9/29, Subscription Publication).
        States, NFIB Want "Speedy Ruling" From Court. The AP (9/29, Sherman) reports, "States and a business group opposed to President Barack Obama's health care overhaul asked the Supreme Court on Wednesday for a speedy ruling that puts an end to the law aimed at extending insurance coverage to more than 30 million people." These "filings, on behalf of 26 states and the National Federation of Independent Business, also said the justices should act before the 2012 presidential election because of uncertainty over costs and requirements." And with respect to "the issue of timing, their cause got an unexpected boost from retired Supreme Court Justice John Paul Stevens, who said voters would be better off if they knew the law's fate law before casting their ballots next year."
        Bloomberg News (9/29, Stohr) reports that the states maintain that "there is 'compelling evidence that Congress intended the mandate to function as the act's essential lynchpin and would never have passed the act without it.'" They "are also asking the high court to review the law's expansion of Medicaid, the joint federal-state health-care program for the poor. The appeals court upheld that provision, rejecting contentions that it improperly coerces states into spending additional money." McClatchy (9/29, Doyle) and the Topeka Capital-Journal (9/29, Carpenter) also cover the story.

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Consumer Reports Finds More People Putting Off Healthcare, Cutting Medication.
Bloomberg News (9/28, Wechsler) reports on a Consumer Reports survey of "1,226 consumers taking at least one medication," finding that "one in six American households and one in four with incomes less than $50,000...felt stress over how much they must spend on medical care," and "almost half [48%]...said they didn't fill prescriptions, took less medicine than a prescribed dose or failed to undergo a medical test advised by their physician," up from "39 percent reported in 2010." Dr. John Santa, director of Consumer Reports' Health Ratings Center, said, "The rising percentage of people putting off health care makes us wonder if we are really done with the recession." Santa also advised physicians "to ask patients whether they are having trouble paying for drugs or medical care, and patients...should tell them when they are financially stressed."
        The Los Angeles Times (9/28, Stein) comments on the same survey in its "booster shots" blog, "Americans aren't just cutting costs these days by clipping coupons -- they're also making some potentially dangerous choices about prescription drugs." Among those: "16% don't fill prescriptions, 13% have taken a drug that expired, 12% skipped a dose without checking in with the doctor or pharmacist, 8% cut pills in half and 4% shared their medicines."
        The New York Times (9/28, Carrns) similarly says in its "Bucks" blog, "Americans are spending less money out of their own pockets each month on prescription drugs, probably because of greater use of lower-cost generics," yet many are still "cutting costs on pills in ways that are unsafe." And "lower-income people, those without drug benefits and those with monthly drug costs of more than $50, were most likely to take such steps."
        WebMD (9/28, Mann) reports that "many people do not fill their prescriptions, take expired pills, skip doses, or split pills -- all to lower costs." Lisa Gill, the editor of prescription drugs for Consumer Reports, recommends that physicians "find out the costs of medications in advance."

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More Companies Offer Health Savings Accounts.
Bloomberg News (9/9, Collins) reports that US businesses are making greater use of Health Savings Accounts (HSAs) "to shift more costs to American workers." The plans pair "high-deductible health insurance with a savings account." The move to HSAs is likened to "the move by employers to 401(k)-type retirement plans from traditional company-funded pensions." It is also presented as "a way to control costs and prepare for changes in health-care law," chiefly a means "to avoid the so-called Cadillac tax beginning in 2018," under the Affordable Care Act, which "applies a 40 percent levy on employer health-care benefits above $10,200 for individuals and $27,500 for families." A survey by the National Business Group on Health found that "almost three quarters of companies...plan to offer an HSA-type plan next year...and 17 percent will make it the only coverage available in 2012."

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Most workers make mistakes on benefits coverage
Most American workers (76 percent) who make decisions about benefits coverage during open enrollment admit to making mistakes about their decisions, a new report reveals.

Almost half (42 percent) of workers say they have wasted money each year because of mistakes they made with their insurance benefits, and about four in five say they are at least somewhat concerned about the possibility of an unexpected medical expense, considering their current financial situation.

These new findings are part of the Open Enrollment Survey of the Aflac WorkForces Report, an online survey of 2,220 U.S. adults conducted in August. Continued here

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Gallup Poll: Fewer Young Adults Uninsured Due To Health Reform.
The AP (9/21) reports, "The number of young adults without health insurance has dropped significantly, a new survey finds, thanks to a provision of President Barack Obama's health care law allowing them to stay on their parents' plans." These results from a "new Gallup poll...translate to about 1 million more young adults with health insurance. While the bleak economy has made it hard for young people trying to enter the workforce, fewer are being forced to also go without medical care."

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How does Carter's Benefits help ?
We continue to stay on top of changes in this industry. In a consultative role, Eddie Carter has begun hosting live seminars to update employers and Human Resource Managers on these changes. If you would like to host a meeting with your local community or civic organization, please contact me for details.

Eddie Carter, Consultant Eddie Carter,
Benefit Consultant
Questions@CartersBenefits.Com
 
 
If you have questions or would like more information please give us a call or send us an email.  Our email address is Questions@CartersBenefits.Com
 
 

Carter's Benefits
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