Questions. On Healthcare Flexible Spending Accounts

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1 Deliver as Promised Questions On Healthcare Flexible Spending Accounts What is a HealthCare Flexible Spending Account? A Healthcare Flexible Spending Account, also called a Healthcare FSA, is like a personal bank account in which you can set aside an amount of money on a pre-tax basis to cover eligible healthcare expenses that are not covered by your health plan. How is an FSA funded? You contribute to an FSA through payroll deductions. Your deductions are made on a pre-tax basis, which means before income taxes and FICA (Social Security). This lowers the amount of taxes you pay. Why should I participate in an FSA? Basically, if you want to save money on your out-of-pocket healthcare expenses you should seriously consider participating in an FSA. Since your contributions are made on a pre-tax basis your taxable income is reduced by the amount you contribute, and that lowers the amount of taxes you pay. For example, an individual in the 28% federal income tax bracket who pays $2,000 in qualified medical expenses out of an FSA would save $560 in taxes! Of course, using the Prepaid Benefits Card makes using an FSA simple and automatic! How does the FSA work? The FSA works in 5 steps: 1. Determine how much you d like to contribute to your FSA for the plan year. 2. Money is deducted on a pre-tax basis from each paycheck throughout the year and kept in an FSA account held by your employer. 3. When you incur an eligible expense, submit an FSA claim form to request reimbursement or use your Benny card. 4. Reimbursement checks include a statement that indicates date of service, provider, patient, and amount of reimbursement for each claim included on the check. 5. At the end of each quarter, you ll receive a cumulative statement that shows year-to-date deposits, claims submitted, claims paid and available FSA balance. This statement reminds you to submit outstanding claims to avoid forfeiting any contributions.

2 How much should I contribute? When determining your annual election amount, you should consider the amount of money you expect to pay out-ofpocket for eligible expenses for the plan period, considering: Last year s medical and/or dependent care expenses Any medical or dental care costs you foresee that might not be covered under your healthcare plans (i.e. deductibles, copayments, over-the-counter drugs, etc.) Any changes in your family status that might have an impact on your medical/dental or dependent care expenses Maximum contributions: Your employer will set the maximum amount that can be contributed to your Healthcare FSA however, IRS maximum is $2,550 per calendar year. Additionally, your employer can set the maximum contribution to the Dependent Care FSA; the maximum contribution for a Dependent Care FSA according to IRS rules is: $5,000 per calendar year for those who are married and filing jointly, head of household or single $2,500 for those who are married and filing separately What healthcare expenses may be reimbursed through a HealthCare FSA? The IRS defines eligible healthcare expenses as expenses you or your dependents incur for the diagnosis, cure, treatment or prevention of diseases, conditions or ailments. Most cosmetic surgeries, unless they are for medical reasons, are excluded. Please see the IRS Publication 502 for details of what expenses are eligible to be reimbursed. Examples of qualified out-of-pocket healthcare expenses that are not covered by your benefit plan but are able to be paid for with an FSA include: Copayments Medical statements with a patient balance due, e.g., health plan deductibles and coinsurance Dental expenses Eyeglasses and contact lenses LASIK surgery Orthodontics Online and mail order pharmaceuticals Eligible over-the-counter products (OTCs) Effective 1/1/11, the list of eligible OTC items is changing per the Patient Protection and Affordable Care Act of Hearing aids Non-covered charges for qualified medical expenses, or provider bills for amounts beyond what insurance pays Healthcare expenses not paid by insurance (e.g., in vitro fertilization) Cholesterol testing kit Wheelchair rental Acupuncture Oxygen

3 Deliver as Promised FSAs can also be used for qualified healthcare expenses that are covered by your benefit plan, but that you choose not to submit to your plan. You can use the Prepaid Benefits Card for all these and more thereby stretching your healthcare dollar and making it easy to do so! Be sure to review your current benefit plan or contact your Plan Administrator for a complete list of eligible expenses. What OTCs may be reimbursed through a HealthCare FSA? The Patient Protection and Affordable Care Act of 2010 has changed the rules for the purchase of over the counter (OTC) products using your Flexible Spending Account (FSA), Health Reimbursement Arrangement (HRA), or Health Savings Account (HSA) pre-tax funds. In the past, the IRS has allowed OTC medicine and drugs to be reimbursed using your FSA, HRA, or HSA dollars. However, as of January 1, 2011: 1. FSA, HRA, or HSA funds can no longer be used to purchase OTC medicine and drugs unless a medicine or drug is prescribed. A prescription means a written or electronic order for a medicine or drug that meets the legal requirements of a prescription in the state in which the medical expense is incurred and that is issued by an individual who is legally authorized to issue a prescription in that state. The OTC items affected include items in the following categories: Acid controllers Baby rash ointments/creams Motion sickness Allergy & Sinus Cold sore remedies Pain relief Antibiotic products Cough, cold & flu Respiratory treatments Anti-diarrheals Digestive aids Sleep aids & sedatives Anti-gas Feminine anti-fungal/itch Stomach remedies Anti-itch & insect bite Hemorrhoidal preps Antiparasitic treatments Laxatives 2. If you have a prescription for an OTC medicine or drug, you must pay out-of-pocket at point of sale and then submit a manual claim requesting reimbursement. You cannot use your Prepaid Benefits Card for this purchase. (NOTE: Some retail merchants may remove OTC drugs and medicines from their list of eligible items prior to the January 1 effective date, in which case these items will not be approved on the Prepaid Benefits Card at those merchants.) 3. You can continue to use your FSA, HRA, or HSA funds to purchase OTC items that are not considered a medicine or drug (e.g. bandages, splints, contact lens solution, etc.) Please note that insulin remains an eligible expense with or without a prescription. So, your Prepaid Benefits Card can continue to be used for these purchases. If you have questions about this OTC change or need more information, please contact your Plan Administrator using the phone number listed on the back of your Card.

4 Can Orthodontic or Obstetric services be reimbursed in advance if I pay them up front to my provider? No. IRS regulations require that services must be incurred (provided) before they may be reimbursed. Therefore, reimbursement is based on the date incurred not the date paid. A lump sum paid in advance for services which will be rendered over time is not reimbursable. However, you may submit a lump sum reimbursement at the conclusion of services. What are some examples of healthcare expenses that are not allowed to be reimbursed through a HealthCare FSA? Examples Include: Teeth whitening services and products Health clubs Hair transplants Most cosmetic surgeries Expenses that are covered by another insurance plan Insurance premiums or premium contributions Please go to the IRS web site for a complete list. Always check your employer s benefit plan materials as well. Can I have an FSA ( Section 125 medical reimbursement) and an HSA to pay for qualified medical expenses? Current IRS guidelines restrict HSA participants from having any other health coverage, which includes the Health FSA, unless the Health FSA is a Limited-Purpose Health FSA (LPFSA). A Limited-Purpose Health FSA only reimburses for benefits of certain permitted coverage that are medical plan deductible has been met. The employees may, however, be enrolled in the Dependent Care FSA. Can I continue participating in my FSA after my employment ends? For the Healthcare FSA account: You may continue to submit claims for any eligible services incurred while you were an active participant (services date prior to your termination). You may also be eligible to continue your coverage through COBRA. If you elect FSA COBRA, you must continue to make contributions to your FSA in the same amount you made when you were an active employee. However, these contributions are no longer pre-tax. This would allow you to submit claims incurred in the remainder of the plan year. The COBRA period for FSA is only for the current plan year, regardless of the length of the COBRA coverage for medical. For the Dependent Care FSA account: You may continue to submit claims for eligible services up to the amount available in your account, even if those services were incurred after your termination, as long as the expenses are incurred to allow you and your spouse to work, attend school full time or look for work. For both Health and Dependent Care FSA claims, you have until the end of the grace period (generally 90 days after the end of the plan year) to submit claims for reimbursement for eligible services.

5 Deliver as Promised Can I change my contribution amount during the year? Yes, but only under certain circumstances. The IRS regulations allow you to change your election within thirty days of a change in family status. Family status changes include marriage, divorce, death of spouse or child, birth or adoption of child and termination of employment of spouse. Always check your employer s benefit plan materials regarding changes. What happens if I don t use all the money in my account? In 2006, the IRS began allowing employers to extend the period for a plan year s purchases up to 2 1/2 months after the plan year. However, employers can choose whether or not to allow this additional grace period. Check with your employer or Plan Administrator to determine a) if they are allowing the grace period for purchases and b) if you can use your Prepaid Benefits Card for these purchases or if you must submit a manual claim. What happens if I have an expense at the end of the year and don t submit it by the end of the plan year? You will have time after the end of the plan year to file claims for qualified expenses that you incurred on or before the end of the plan year. The deadline for submitting claims is usually three months following the end of the plan year. Always check your employer s benefit plan materials or call your Plan Administrator. In 2006, the IRS began allowing employers to extend the period for a plan year s purchases up to 2 1/2 months after the plan year. However, employers can choose whether or not to allow this additional grace period. Check with your employer or Plan Administrator to determine a) if they are allowing the grace period for purchases and b) if you can use your Prepaid Benefits Card for these purchases or if you must submit a manual claim. If your employer does not allow the grace period, you must use all your FSA contributions before the end of the plan year or you will forfeit any money left in your account. Can I still benefit from an FSA if I don t itemize deductions on my tax return? Yes. You don t need to itemize deductions to take advantage of this benefit. Can I deduct the healthcare expenses on my tax return that are reimbursed through the healthcare FSA? No. You cannot claim a tax deduction for the same expenses that are reimbursed tax-free through your healthcare FSA. But, keep in mind only healthcare expenses that are more than 7 1/2% of your adjusted gross income can be deducted from your income taxes, and most people do not have enough expenses to take the deduction. So, in a sense, an FSA eliminates the 7 ½% threshold. If I become disabled and am only working part-time, can I adjust my FSA account contributions? Yes. This constitutes a family status change. Always check your employer s benefit plan materials.

6 Will I ever need to submit a paper claim form? You may need to submit a claim form along with the receipts if: You make a purchase at a place that does not accept VISA You forget to take your Prepaid Benefits Card with you You choose not to use the Card for a particular transaction Your transaction is denied for any reason Where do I get a claim form? If, you don t use the Prepaid Benefits Card, then contact your Plan Administrator at the phone number on the back of your Card to obtain a claim form. How much money can I set aside in my account? The maximum is set by your employer and is identified in your employer s enrollment materials. Enrolling in an FSA How do I enroll in an FSA? Just complete the Enrollment Form provided by your employer and indicate the amount you want deducted from each paycheck. When can I enroll in an FSA? You can enroll in the FSA during your employer s annual open enrollment or during the plan year, if you experience a family status change. But remember, if you are eligible for the FSA during open enrollment and you choose not to participate, you will not be eligible to participate in the FSA until the next open enrollment unless you have a family status change. Always check your employer s benefit plan materials.

7 Deliver as Promised Using FSAs with the Prepaid Benefits Card Can I use this account to pay for my spouse s deductibles, copayments or other eligible expenses? Yes, an FSA can be used to pay for your spouse s eligible expenses. You receive two Prepaid Benefits Cards so your spouse or dependent can sign and use one of them. Can I use this account to pay for my dependents eligible expenses, even if they are covered under a different health plan or I have waived medical coverage for them? Yes, you can use your account for eligible expenses for anyone who qualifies as your dependent on your tax return. A reminder: You receive two Prepaid Benefits Cards so your spouse or dependent can sign and use one of them. You can also purchase additional Cards for a small fee to suit your unique dependent needs. Where can I use my Prepaid Benefits Card? IRS regulations allow you to use your Prepaid Benefits Cards in participating pharmacies, mail- order pharmacies, discount stores, department stores, and supermarkets that can identify FSA/HRA-eligible items at checkout and accept MasterCard prepaid cards or Visa prepaid cards. Eligible expenses are deducted from the account balance at the point of sale. Transactions are fully substantiated, and in most cases, no paper follow-up is needed. You can find out which merchants are participating by visiting the web site on the back of your Card or consulting your Plan Administrator. Some plan designs may also allow you to use their Cards in pharmacies that have certified that 90% of the merchandise they sell is FSA/HRA-eligible. However, since these pharmacies cannot identify the eligible items at the point of sale, another form of auto substantiation or paper follow-up will be required. You may also use the Card to pay a hospital, doctor, dentist, or vision provider that accepts MasterCard or Visa. In this case, EB uses its auto-substantiation technology to electronically verify the transaction s eligibility according to IRS rules. If the transaction cannot be auto substantiated, paper follow-up will be required. Are there places the Prepaid Benefits Card won t be accepted? Yes. Your card will not be accepted at locations that do not offer the eligible goods and services, such as hardware stores, restaurants, bookstores, gas stations and home improvement stores. Cards will not be accepted at pharmacies, mail-order pharmacies, discount stores, department stores, and supermarkets that cannot identify FSA/HRA-eligible items at checkout. The Card transaction may be declined. You can find out which merchants are participating by visiting the web site on the back of your Card or consulting your Plan Administrator.

8 How does the Card work in participating pharmacies, discount stores, department stores and supermarkets? a. Bring prescriptions, vision products, OTCs and other purchases to the register at checkout to let the clerk ring them up. (Please note: Effective 1/1/11, the list of eligible OTC items is changing per the Patient Protection and Affordable Care Act of See question above for details, and contact your plan administrator for more information.) b. Present the Card and swipe it for payment. c. If the Card swipe transaction is approved (e.g., there are sufficient funds in the account and at least some of the products are FSA/HRA-eligible), the amount of the FSA/HRA- eligible purchases is deducted from the account balance and no receipt follow up is required. The clerk will then ask for another form of payment for the non- FSA/HRA- eligible items. d. If the Card swipe transaction is declined, the clerk will ask for another form of payment for the total amount of the purchase. e. The receipt will identify the FSA/HRA-eligible items and may also show a subtotal of the FSA/HRA-eligible purchases. f. In most cases, you will not receive requests for receipts for FSA/HRA-eligible purchases made in participating pharmacies, discount stores department stores or supermarkets. Can I use my Prepaid Benefits Card for prescriptions ordered prior to activation of the card? No. Your Card must be activated prior to the order or purchase date of your prescriptions. You need to wait 1 (one) business day after activating your card to purchase prescriptions at your pharmacy with the Card. For example, if the Card is activated on Tuesday, a prescription can be ordered and picked up on Wednesday. Can I use the Prepaid Benefits Card if I receive a statement with a Patient Due Balance for a medical service? Yes. As long as you have money in your account for the balance due, the services were incurred during the current plan year, and the provider accepts MasterCard debit cards or Visa debit cards, simply write the Card number on your statement and send it back to the provider