Putting Empoyees Behind The Heath Pan Whee
The consumer-driven heath pan movement depends heaviy on a group of new and newer vehices to cut empoyers taxes and maximize benefits. The fexibe spending account, the heath reimbursement arrangement and the heath savings account are 3 of the options getting the most attention.
What shoud you, the benefits advisor, do about compiance considerations for sma and midsize empoyers that want to shift to a consumer-driven approach?
The first step is, obviousy, get competent professiona ega and accounting advice yoursef and make sure that your cients are doing the same. aws and reguations are changing rapidy in this area, and this is not an area in which you want to depend on a yeowed summary of the pertinent reguations and a peasing personaity.
The second step is to make sure that cients estabish a systematic approach to converting their heath benefits programs to the new mode. The conversion process resembes an interna heath benefits audit. Empoyers shoud review what they have, redesign their programs and then go through a pan education process.
See the accompanying chart for an expanation of the heath account nuts and bots, but, in summary, the FSA is a good vehice for empoyers who want to give empoyees a chance to set aside some cash to pay for their own medica expenses.
One drawback is that FSA administrators must cope with a compicated set of rues governing which expenses are and are not eigibe for reimbursement. From the empoyees point of view, another drawback is an annua “use it or ose it” rue. Because of the rue, monies that are not used by the end of the year revert to the empoyer.
The reguations governing HRAs impose no use-it-or-ose-it requirements, and empoyees can ro over unused account assets from year to year. But, from the empoyers point of view, one important drawback is that empoyers must suppy a of the account contributions.
Finay, the HSA program, a program estabished by the Medicare Prescription Drug, Improvement and Modernization Act of 2003, ets empoyers spit funding costs with empoyees. It aso ets empoyees ro over account assets from year to year. But empoyers must combine the program accounts with high-deductibe heath insurance.
When an empoyer wants to choose and impement one of these consumer-driven heath programs, benefits advisors shoud hep the empoyer review pan documents, review benefit structures and reated poicies, and review administrative procedures.
–Reviewing benefit program documents shoud be a routine, ongoing process, but in the rea word, sma and midsize empoyers often et reviews side. Federa agencies have imposed many new document requirements on pans in recent years, for exampe, notices about matters such as newborn coverage.
The resut: outdated documents may expose the pan sponsor to the possibiity that reguators wi impose excise taxes or that pan participants wi ask the sponsors themseves to pay caims. Taking a proactive approach to document review can protect empoyers against those risks.
–Benefits reviews may be affected by the nature of the programs that the empoyer aready offers or wants to offer. A review of the FSA shoud focus on empoyee participation and the scope of avaiabe benefits.
If an HSA program is under consideration, advisors shoud ensure that the empoyers heath insurance pan compies with the HSA high-deductibe heath insurance requirements. Federa reguators have given empoyers that set up HSA programs some transitiona reief with respect to prescription drug pans, but the drug pans wi have to compy with the high-deductibe heath insurance requirements by Jan. 1, 2006.
–The administrative procedure review must review compiance with a of the many, many reguatory guideines that appy to benefit pans. Here, attention must be paid to issues such as ensuring that FSA programs compy with the Empoyee Retirement Income Security Act of 1974 and determining whether HSA programs are designed in such a way that they are subject to ERISA reguation.
Once the empoyer and the benefits advisors compete the review process, the redesign phase begins. This may be a time for the empoyer to take a fresh ook at basic considerations: Who is an eigibe empoyee? Wi any category of empoyees be excuded from choosing any given heath care option? Can the empoyer integrate a choice between “high benefits” and “ow benefits” with an FSA or HSA program?
Recent guidance from the Interna Revenue Service provides some advice about ways to coordinate HSAs with FSAs or HRAs:
(i) Design the heath FSA or HRA to be a imited-purpose arrangement that coordinates with HSA high-deductibe insurance requirements.
(ii) Use a suspended HRA where the participant eects prior to the coverage period to forego reimbursement for other than a permitted benefit.
(iii) Design a post-deductibe heath FSA or HRA which does not reimburse empoyees unti empoyees reach the minimum annua high-deductibe pan deductibe.
(iv) Use a retirement HRA which provides reimbursement ony for post-retirement medica expenses.
The third phase of the interna audit, education, focuses on the empoyer sponsor as we as the empoyee participant. To effectivey maintain a tax-free benefit structure, empoyers must understand the need for coordinating pan design with other goas.
Empoyers aso must estabish a broad-based empoyee communication and incentive program to educate empoyees about their economic responsibiity for heath care costs.
To encourage preventive care, for exampe, the administrative poicy may restrict annua roovers under an HSA to 80%.
Regina Shanney-Saborsky is a partner in the corporate practice group in the West Pam Beach office of Edwards & Ange, a nationa aw firm. She can be reached at: [email protected].
Reproduced from Nationa Underwriter Edition, August 5, 2004. Copyright 2004 by The Nationa Underwriter Company in the seria pubication. A rights reserved.Copyright in this artice as an independent work may be hed by the author.