Flexible Benefits. Health Reimbursement

Transcription

1 Flexible Benefits Training Health Reimbursement Arrangements (HRAs)

2 2 What is an HRA? Employer funded account Fixed dollar amount to each employee Employees determine their own needs and apply dollars where needed d Left over funds may accumulate from year to year Must have a written plan document and provide Summary Plan Description (SPD) to participants

3 3 Plan Limitations Dollar limit for HRA set by the employer IRS sets no dollar limits While regulations prohibit a sole proprietor, partners, members of an LLC (in most cases) or individuals owning more than 2% of an S corporation from participating in the HRA plan, they may still sponsor a plan. Employee shareholders of regular C corporations may participate.

4 4 How to Use an HRA Part of a Consumer-Directed Health Plan (CDHP) design Defined contribution approach Cap benefit costs per employee Lower benefit costs per employee Enhance participation in FSA Retirement health benefits Create transparency for health care costs

5 5 HRA Plan Designs Bridge Comprehensive Limitedit Insurance Only

6 6 Bridge Plan Combined with high deductible insurance product Combined with limited coverage insurance product

7 7 Bridge Plan Lower benefit costs Combine HRA with high h deductible d insurance product Provides higher deductible/out-of-pocket insurance product Provides employee bridge with HRA

8 8 Bridge Plan Raise deductible/out-of-pocket employee pays from $500 to $1,500 Make available $1,000 bridge per employee with HRA Results Lower premium costs (not in all states or situations) Unused dollars from HRA may be retained by employer or rolled forward each year

9 9 Bridge Plan Deductible + Bridge = $1,500 Bridge + Deductible = $1,500 Bridge may be designated to be used only for deductible, d co-pays or limited it list of expenses

10 10 Debit Cards and Bridge Plans Participant submits explanation of benefits (EOB) showing their portion of the deductible has been met Debit card is then made available to participant for bridge portion of HRA plan RX-only card could pay for RX with paper claims used for deductible expenses

11 11 Comprehensive Plan Covers all medically necessary expenses outlined in IRC Section 213(d) Could exclude big-ticket items like LASIK surgery or orthodontia

12 12 Comprehensive Plan Maximize benefits to key employees Employer delivers specified contribution ti for a qualified medical expense Corporation continues to pay insurance premium for key employees Rank and file employees pay insurance premium from HRA

13 13 Maximize Benefits to Key Employees All employees, both key and non-key receive $3,000 for the plan year Key employees may use their money for any eligible medical expense Non-key employees must first use their $3,000 for the employer-sponsored health insurance premiums

14 14 Maximize Benefits to Key Employees NAME STATUS ANNUAL EXPENSES AMOUNT Jane Key EE $ 3,000 Dental $ 1,900 Vision $ 850 Prescriptions $ 250 Joe Non Key EE $ 3,000 Premiums $ 1,200 Dental $ 1,800

15 15 Limited Plan Designed to cover one or two medical expenses, such as vision or dental Additional benefit offering Plugs the holes in limited-coverage it insurance product Limits employer s liability

16 16 Limited Plan Lower benefit costs per employee Delete prescription benefit contained in current benefit package Install HRA Results Lower premium costs Employees make wiser choices for fewer and/or generic drugs

17 17 Insurance Only Plan Cap benefit costs HRA to cover insurance premium costs formerly paid by employer Future insurance premium increases paid by employee Cannot allow employee to choose between 125 salary redirection or HRA to pay premiums or health care expenses Order of payments must be in plan document

18 18 Insurance Only Plan IRS Notice specifically outlines the interaction between HRAs and cafeteria plans IRS Notice specifically outlines the ordering rules for reimbursement from HRAs and cafeteria plans

19 19 Insurance Only Plan The cost for family coverage is $3,200. Employer provides $1,000 to all employees who sign up for their employer-sponsored health insurance. (This could be a different amount for those selecting single coverage.) The total cost to the employee is $2,200 In a subsequent year, the cost for family coverage is increased to $3,500. Employer still provides $1,000 through the HRA to those selecting family coverage. The employee now pays through payroll deduction $2,500 instead of $2,200 The employer s expense remains the same

20 20 HRA Funding and Deductibility Employer may make the HRA annual commitment available on the first day of the plan year or on a periodic basis (per pay, monthly, quarterly) HRA expenses are tax deductible to the employer at HRA expenses are tax deductible to the employer at the time they are paid, not at the time contributions are made available

21 223 Health Savings Account (HSA) Section 125 Cafeteria Plan 137 Adoption Assistance 129 Dependent Care Assistance 79 Group Term Life Insurance 105 & & 106 Health, Vision & Unreimbursed Dental Plans Medical

22 22 Section 105(h) Discrimination Rules Discriminatory Operation Test Classification Test Percentage Test Benefits Available Test

23 23 Section 105(h) Discrimination Rules Determine eligibility to participate C corporation owners may participate i t Determine contributions to the plan Cannot be based on employees compensation, age or years of service Can be based on health insurance product selected Determine if funds are forfeited or roll forward from year to year

24 24 COBRA and HIPAA HRAs subject to COBRA continuation rules like health insurance policy HIPAA Certification of credible coverage Security Privacy Electronic Data Interchange (EDI) (if you perform certain functions) Latest reporting rules

25 25 COBRA Continuation Qualifying Events Termination of employment Reduction of hours Death Divorce Dependent no longer eligible Entitlement to Medicare Employer bankruptcy Generally 18 months. If COBRA payments continued, their coverage could continue to a subsequent plan year

26 26 COBRA Continuation Separate, and equal, accounts must be established for qualified beneficiaries Spouse Dependents Employer could require that participants have to elect employer-sponsored health plan before they can elect COBRA continuation for HRA

27 27 COBRA Continuation COBRA example HRA annual limit it $ 600 Reimbursement to date $ 50 Employee poyeeterminates aesjuy July 1 Plan design annual limit available January 1

28 28 COBRA Continuation Premium calculated actuarially or on previous experience rating Example Employee pays $41/month to continue coverage in HRA includes 2% admin. fee Continues to turn in claims Employee can receive up to annual limit (minus previous reimbursements) for expenses incurred in any covered month

29 29 COBRA Continuation COBRA example HRA annual limit it $ 600 Reimbursement to date $ 50 Employee poyeeterminates aesjuy July 1 Plan design employer makes available HRA monthly

30 30 COBRA Continuation Premium calculated actuarially or on previous experience rating Example Employee pays $41/month to continue HRA coverage - includes 2% admin. fee Continues to turn in claims Employee can receive up to amount of year-to-date deposits (minus previous reimbursements) for expenses incurred in any covered month And continue to receive monthly deposits made each month without t additional COBRA premiums

31 31 Form 5500 Generally must be filed for HRA plans with 100 or more participants at the beginning of the plan year or If f d id d l t h If funds are considered plan assets as when a trust is maintained

32 32 Roll Forward Approach Smaller funding per year such as ¼ of deductible amount Retiree funding Designate percentage of annual limit it that t may be rolled forward Percentage of balance, flat dollar amount and/or overall limit to each account Designate that FSA must be used first more Designate that FSA must be used first more money rolled forward, fewer HRA reimbursements

33 33 Forfeiture Approach Unused dollars forfeited back to employer Cap or lower benefits cost Roll forward during period of employment, forfeited f upon termination ti of employment May cause discretionary use of fund Designate that FSA be used last

34 34 HRA or HSA? How can the employer decide which plan is best for them? Employer implements a higher-deductible insurance plan.

35 35 HRA or HSA? Here are the questions to ask an employer. Do you want to allocate a portion of the premium you save into an account for each employee? Do you want to designate how the funds are spent in this employee account? Do you want the employees to be able to roll over unused dollars from year to year? Do you want the annual election to be available at the beginning of the plan year?

36 36 Compare Health Accounts Benefit Comparison FSA HSA HRA Pretax employee contributions Yes Yes No Claims are required Yes 4 No 5 Yes 4 Benefit payments are tax-free Yes Yes Yes Pays all IRS Code Section 213 expenses Yes Yes Optional Pays long-term care expenses or insurance No Yes Optional Employees carry over unused amounts Optional 6 Yes Optional Employee can take to new employer No Yes No Employee can use at retirement No Yes Optional Employer contributions required Optional Optional Yes Maximum limit on contributions No 1 Yes 2 No 1 2 IRS-imposed limits for 2012: Annual limit of 1 IRS does not limit. Employer sets plan limit. $3,100 for single coverage and $6,250 for Employer pre-funded, entire election available for Yes No Optional family coverage if HDHP coverage begins by reimbursement at beginning of plan year December 1. Catch up contributions for those 55 and over: $1,000. High deductible health plan (HDHP) required Optional Yes 3 Optional 3 IRS-imposed limits for 2012: Minimum deductible of $1,200 with maximum out-ofpocket expenses of $6,050 for single coverage and a $2,400 minimum deductible with maximum out-of-pocket expenses of $12,100 for family coverage. 4 Certain debit card swipes may not require a claim form and receipts to be submitted if electronically adjudicated. 5 Payment substantiation upon audit of Form Employers may elect a 2-1/2 month grace period for employees to use leftover funds from a previous plan year to pay for expenses incurred in a new plan year.

37 37 HRAs and Debit cards Couple an HRA with an RX or a Pharmacy debit card RX card will only purchase prescription drugs Pharmacy card will work with IIAS to purchase eligible expenses at qualified locations Employee may submit claims for deductible expenses, or other items covered by the plan

38 38 HRAs and HSAs Roll funds from HRA to HSA (ended January 1, 2012) Amend plan document Only one rollover allowed per plan Participant must have qualified high deductible health plan Participant elects before the end of the plan year No reimbursements from the plan after the end of the plan year Employer makes a direct trustee to trustee transfer to HSA custodian within 15 days of the end of the plan year Amount of rollover is the lesser of the current balance or the balance on September 21, 2006 Balance in the HRA must be zero after the rollover takes place

39 39 Enhance FSA Participation Guarantee no loss in health FSA HRA as seed money to begin participation in reimbursement plan With l ti i ti l illi With employer participation, employees willing to elect more salary redirection

40 40 Retiree Benefits Employee decision to save for retirement health benefits Retirement benefit account has accrued total available over several years Pay for long-term care insurance premiums Maximize benefits to owners and key employees

41 41 Retiree Benefits Revenue Ruling Vacation and sick time may be used to fund a retiree HRA HRA fund earmarked for health care can never be available in cash taxable events Cash out at the end of the plan year or upon termination Cash payout to beneficiary upon death of participant Employees given a choice of transferring all or a portion of their forfeited money to one of several retirement plans or to receive the amount as cash Cash out plans render the entire plan invalid and payments for eligible medical expenses are also taxable

42 42 Reporting Requirements to CMS Medical Second Payer (MSP) reporting to Centers for Medicare e and Medicaid d Services (CMS) for HRAs ev3.pdf - MSP Mandatory Reporting GHP (group health plan) User Guide Responsible Reporting Entities (RREs) register starting May 1, 2010 HRAs reported quarterly Report HRAs as soon after the effective date of the coverage date. For HRAs effective October 1, 2010 Reporting will not take place on October 1, 2010 No retroactive reporting is required. Only HRA coverage with effective dates of October 1, 2010 and subsequent must be reported

43 43 Reporting Requirements to CMS Termination dates submitted if participant loses or cancels ce coverage Submit termination date if participant has less then $5,000 (starting October 3, 2011) in their account Report HRA coverage using a value of R in the Coverage Type Field 8 on MSP Input File Detail Records Only HRA coverage that reflects an annual benefit value of less than $5,000 (starting October 3, 2011) are exempt from reporting Do not report HRAs that t only cover expenses not covered by Medicare like dental and vision only plans Do not report HRAs that only cover retirees

44 Flexible Benefits Training Health Reimbursement Arrangements (HRAs)