Defined Contribution Approach to Benefit Planning 1 Sue Sieger, ACFCI, CAS Senior Compliance Consultant Employee Benefits Corporation sue.sieger@ebcflex.com The material provided in this webinar is by Employee Benefits Corporation and is for general information purposes only. The information does not constitute legal advice and may not be relied upon by anyone as such. Nor may the information be disseminated in any form. 2 1
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Our Agenda Defined Contribution Plan in General Section 125, FSA, HRA, HSA Review Cafeteria plan, HRA and HSA eligibility rules Cafeteria Plan Design Strategies HRA Plan Design Strategies How FSA, HRA and HSA can be used together to stretch any size benefit budget 8 4
Defined Contribution Plan Defined 9 Defined Contribution Plan in General Defined Benefits Employer determines the range of services the plan will cover (i.e. group health plan) Employer selects a plan that will provide specific services for a desired price Options are generally limited to one plan Unsustainable due to healthcare inflation 10 5
Defined Contribution Plan in General Defined Contribution Approach Employer determines how much will be spent on benefits up front Employer contribution is fixed and may be based upon lowest cost option with the employee option to buyup Employer typically provides options that employees can choose from (spend employer contribution) Benefits chosen in excess of employer contribution often purchased through payroll deduction 11 Defined Contribution Plans in General EMPLOYER ADVANTAGES Allows employers to fix the amount of their financial contribution obligation Create more engaged consumers by paying a fixed amount or limiting employer contributions to specific choices Allow employers more control and predictability over costs 12 6
Defined Contribution Plans in General EMPLOYEE ADVANTAGES Employees have the ability to use the employer contributions for a variety of benefit options Employees become more in tune with the cost of care and will ultimately become better consumers and stewards of healthcare dollars Better use of employee benefit dollars could lead to expanded benefit packages or additional compensation 13 Defined Contribution Plans in General EXAMPLES OF DEFINED CONTRIBUTION PLANS Retirement Plans Health Plans Private Exchanges Active Employees Retiree Health Cafeteria Plans that include Employer contributions Flexible Spending Accounts (FSA) Employer sponsored Insurance and Voluntary Products Consumer Directed Healthcare Health Reimbursement Arrangements (HRA) Health Savings Account (HSA) 14 7
COST SAVINGS SOLUTIONS REMAIN KEY Health Care Reform does not address one of the main problems with health care Rising Cost. Engaging Consumers will lead to a change in behavior which will lead to a reduction in cost. Flexible Spending Arrangements (FSA) Health Reimbursement Arrangements (HRA) Health Savings Accounts (HSA) 15 Section 125, FSA, HRA and HSA Review 16 8
Key Definitions Glossary of Acronyms Acronym Definition FSA Flexible Spending Account HRA Health Reimbursement Arrangement HDHP High Deductible Health Plan HSA Health Savings Account DOL Department of Labor IRS Internal Revenue Service HIPAA Health Insurance Portability and Accountability Act of 1996 ACA Affordable Care Act SBC Summary of Benefits and Coverage HHS Health and Human Services ERISA Employee Retirement Income Security Act SPD Summary Plan Description Section 125 Rules in General Cafeteria plans are primarily governed by Code 125 and Proposed Treasury Regulation 1.125 1 through 1.125 7* Pre tax salary reductions Pretax Insurance Premiums or Premium Only Plans (POP) Health Flexible Spending Arrangements (Health FSAs) have some additional requirements under Code sections 105 and 106 Dependent Care Assistance Plans (DCAPs) have requirements under Code Section 129 Pretax contributions can be made to a Health Savings Account (HSA) under these plans. Additional requirements are outlined under Code Section 223 *These Proposed Treasury Regulations will be finalized???? 18 9
Section 125 Qualified Plan Options Pre tax Premium Options Group Health Group or Voluntary Dental Group or Voluntary Vision Group Term Life ($50,000 Employee limit for pre tax) Accidental Death & Dismemberment Group or Voluntary Short/Long Term Disability* Ancillary Lines (i.e. Cancer, Accident, Critical Illness, Specified Health Event, Intensive Care, etc.) *Taxed on benefit if premiums are pre tax. 19 ERISA plan or Voluntary Plan? REMINDER A health or welfare plan is subject to ERISA if it is established or maintained by the employer Requires the employer to be involved with the benefit to more than a minimal degree 20 10
ERISA plan or Voluntary Plan? ERISA Safe Harbor for Voluntary Benefits No contributions from the employer or employee organization (e.g., union) Participation in the program must be completely voluntary The sole function of the employer is to allow the insurer to advertise the plan, collect premiums through payroll and remit them to the insurer (no endorsement of the program) The employer may not receive any form of cash, incentives or other compensation associated with the program 21 ERISA Plan Requirements Key Compliance if employer is subject to ERISA Requires each group health and welfare benefit plan, regardless of size, are required to have a written plan document in place and to distribute a summary plan description (SPD) to participants No written document doesn t necessarily mean you don t have a plan you just have a plan that is out of compliance of this aspect SPD distribution Within 120 days for new plans Within 90 days for new participants Every 5 years if material changes Within 30 days of written request 22 11
ERISA Plan Requirements Key Compliance if employer is subject to ERISA Record Retention: Must keep plan records for 6 years from last Form 5500 filing (which may mean 7 8 years conservatively) IRS Form 5500 filing requirement and Summary Annual Report (SAR) for large plans Small plan exception Over 100 participants on the 1 st day of the plan year triggers filing requirement 23 Types of FSAs General Health FSAs Health FSAs permit reimbursement of medical care expenses permitted under IRS guidelines. Internal Revenue Code 213(d) expenses (health, dental, and vision) may be eligible for reimbursement. Limited Health FSAs Health Savings Account (HSA) compatible Limited Health FSAs permit reimbursement of only dental, vision and preventive care expenses permitted under IRS guidelines. 24 12
Types of FSAs Post HSA Deductible Health FSAs Health Savings Account (HSA) compatible Post HSA Deductible Health FSAs permit reimbursement of only dental, vision and preventive care expenses permitted under IRS guidelines until the participant can certify that he/she has met the required minimum HDHP deductible*. Once minimum HDHP deductible is satisfied the FSA can reimburse general medical expenses. *2015 and 2016: $1300 Single and $2600 Family 25 Types of FSAs Dependent Care FSA Code 129 dependent care plan rules Reimbursement for work related expenses for custodial care of qualifying individuals under the age of 13 unless the individual is unable for self care Individual Premium Account ( FSA Like ) Tax free reimbursement of eligible insurance premium expenses, except medical insurance Cannot integrate Individual Premium Accounts with individual policies IRS Notice 2013 54 and IRS Notice 2015 17 26 13
What is an HRA? Health Reimbursement Arrangements (HRA) Internal Revenue Code Section 105 100% Employer funded Medical Expense Reimbursement. No Employee contributions allowed HRA participation is contingent on participation in employer sponsored medical plan (IRS Notice 2013 54) IRS Notice 2002 45 and Revenue Ruling 2002 41 Subject to COBRA: May permit (not required) carryovers of unused amounts and/or spend down of unused balances at termination or retirement in lieu of COBRA. Internal Revenue Code 213(d) expenses (health, dental, and vision) may be eligible for reimbursement. HRA may be limited to certain expenses or certain categories of expenses. 27 Types of HRAs Limited HRAs Health Savings Account (HSA) compatible Limited HRAs permit reimbursement of only dental, vision and preventive care expenses permitted under IRS guidelines. Post HSA Deductible HRAs Health Savings Account (HSA) compatible Post HSA Deductible HRAs permit reimbursement of only dental, vision and preventive care expenses permitted under IRS guidelines until the participant can certify that he/she has met the required minimum HSA deductible. Health Savings Account (HSA) compatible HRAs permit reimbursement for general medical expenses only after at least the required minimum HSA deductible has been satisfied. Accomplished through plan design. 2015 and 2016 Min. HDHP Deductible $1300 Single and $2600 Family 28 14
What is a HSA? Health Savings Account (HSA) Internal Revenue Code Section 223 IRA type accounts that individuals, covered by a qualified high deductible health plans (HDHP), established after January 1, 2004 to pay for qualified medical expenses. Eligible Individuals cannot be covered by another plan that is not a qualified HDHP, including flexible spending arrangements, MSA, and HRA plans. (Exception: Coverage for accident, disability, dental, vision, and long term care, or for specified diseases are permissible.) No first dollar coverage (i.e. RX drug plans with co pays) permitted for anything other than preventive care. preventive care includes items such as annual physicals and wellness type tests and visits. No Drug Card. Individually owned HSA accounts are required to rollover unused balances from year to year and may earn interest tax free. 29 Cafeteria plan, HRA and HSA Eligibility Rules 30 15
Who is Eligible to Participate? Individuals Eligible to Participate in a Cafeteria Plan and Health Reimbursement Arrangement (HRA): Current and former common law employees; Spouses and dependents may have coverage under the eligible employee Cafeteria plan cannot be established primarily for former employees. Retirees cannot use qualified retirement plan distributions to pay for medical coverage on a pre tax basis through a cafeteria plan. Rev. Rul. 2003 62. Retiree Only HRA plans Former employees or employees no longer eligible can spend down accumulated HRA funds in lieu of COBRA Controlled group member employees 31 Who is Not Eligible to Participate? Individuals who are Not Eligible to Participate in a Cafeteria Plan and HRA. Self employed individuals as defined in Code 401(c); Prop. Treas. Reg. 1.125 1(g)(2)(i). Sole proprietors, partners in a partnership and more than 2% shareholders of an S Corporation (including their family members of lineal ascent and descent) Note: Unlike the more than 2% Subchapter S owner rules, the family members of sole proprietors and partners can participate in a cafeteria plan maintained by the partnership or sole proprietorship 32 16
Who is Eligible to Participate? Treasury FAQ 1/24/13 Compliance of Health Reimbursement Arrangements with Public Health Service Act (PHS Act) section 2711..The preamble distinguished between HRAs that are integrated with other coverage as part of a group health plan and HRAs that are not so integrated ( stand alone HRAs). The preamble stated that [w]hen HRAs are integrated with other coverage as part of a group health plan and the other coverage alone would comply with the requirements of PHS Act section 2711, the fact that benefits under the HRA by itself are limited does not violate PHS Act section 2711 because the combined benefit satisfies the requirements. (75 FR 37188, at 37190 37191). An HRA is not considered integrated with primary health coverage offered by the employer unless, under the terms of the HRA, the HRA is available only to employees who are covered by primary group health plan coverage provided by the employer and meeting the requirements of PHS Act section 2711. (no annual or lifetime limits) 33 Who is Eligible to Participate? Individuals who are Eligible to Participate in a Health Savings Account (HSA) HSA eligibility is determined on a monthly basis. Must be covered under a qualified High Deductible Health Plan (HDHP) and not entitled to (enrolled in) Medicare Eligible Individuals cannot be covered by another plan that is not a qualified HDHP, including regular health flexible spending account (limited health FSA is OK), MSA, and HRA that reimburses prior to satisfaction of the minimum HDHP deductible. (Exceptions: Coverage for accident, disability, dental, vision, preventive care and long term care, or for specified diseases are permissible.) An eligible individual is any taxpayer including sole proprietors, partners, members of LLC, and S Corp shareholders and family. 34 17
Cafeteria Plan Design Strategies 35 Cafeteria Plan Design Strategies Offer additional pay to everyone if no health benefits available to anyone (IRS Notice 2015 17) Taxable as wages No Spousal medical coverage Cash in lieu of health insurance Must be in your cafeteria plan Employer contributions to cafeteria plan Elective Contributions Non Elective Contributions Cashable Contributions 36 18
Market Reform Violations under ACA Reimbursement of Individual Insurance Premiums DOL Technical Release 2013 03 and IRS Notice 2013 54 (collectively, the Agency Guidance ) Cannot reimburse individual health insurance premiums (primary source of medical coverage) through a cafeteria plan or HRA on a pretax basis No insurance premiums can be reimbursed through a Health care FSA (never could) Can reimburse individual non medical (e.g. dental, vision, accident, cancer, etc.) insurance through a separate section 125 account (e.g., individual billed premium account) 37 Market Reform Violations under ACA Reimbursement of Individual Insurance Premiums The agency guidance created a new term Employer Payment Plan Any pretax arrangement that facilitates the direct or indirect payment of individual health insurance premiums HRA plans, cafeteria plans through salary reduction or reimbursement and any other arrangements Many employers had used these accounts in lieu of offering group health insurance coverage 38 19
Market Reform Violations under ACA Reimbursement of Individual Insurance Premiums Notice 2015 17 Small employer transition relief Small employer (less than 50 employees) transition relief until June 30, 2015 An employer that continues to reimburse or pay for their employees individual medical insurance premiums is subject to the excise tax penalty for doing so after June 30, 2015. The tax penalty is $100 per day (or higher) per employee that fails to comply. Providing after tax cash (additional taxable compensation) only to those purchasing individual medical plans creates an employer payment plan and is in violation of ACA market reforms. 39 Cafeteria Plan Design Strategies Employer contributions Elective Contributions Employer sets an employer contribution level Some employers provide flexibility in their plan design to allow employees an opportunity to choose which benefits the employer s contribution is used for (e.g., to insurance options, Health Care and/or Dependent Care FSA). The amount of the employer elective contribution that the employee allocates to the Health Care FSA is not included in the employee s pre tax election maximum. If a mid year event occurs, the employer s contribution and any pre tax amount elected by the employee are subject to the permitted election change rules. 40 20
Cafeteria Plan Design Strategies Employer contributions Elective Contributions (cont.) The amount of the employer elective contribution that the employee allocates to the Dependent Care FSA, Health Savings Account or IND account is included in any maximum that applies to the account. If a mid year event occurs, the employer s contribution and any pre tax amount elected by the employee are subject to the permitted election change rules. 41 Cafeteria Plan Design Strategies Elective Contribution Example ABC Company has a cafeteria plan that offers employer sponsored medical insurance, dental insurance, Health Care FSA, Dependent Care FSA, Health Savings Accounts. ABC Company provides an employer contribution of $100 per month that can be used towards any of the benefit options in the cafeteria plan. Employees can choose how they want to use the $100 per month. Must be used for options in the plan and any remaining amount is forfeited. Employer contribution is in addition to up to $2,550 of employee s pretax election for Health Care FSA ($2,550 + $1,200=$3,750) 42 21
Cafeteria Plan Design Strategies Employer contributions Non Elective Contributions Employer sets an employer contribution level Some employers choose to make specific contributions to the reimbursement accounts (e.g., Health Care FSA, Dependent Care FSA, etc.). If the employer contribution can only be applied to a specific account (e.g., only to the Health Care FSA), the contribution is a non elective employer contribution and the following rules apply to these employer contributions: When the employer contribution can only go to the Health Care FSA, the employer s contribution is not included in the employee s pre tax election maximum. 43 Cafeteria Plan Design Strategies Employer contributions Non Elective Contributions (cont.) If a mid year event occurs, the employer s contribution does not change unless the employee gains or loses eligibility for the contribution (e.g., the employer only contributes if the employee is not enrolled in the health insurance and the employee enrolls in the health plan mid year or drops the health insurance mid year). Any pre tax amount elected by the employee is subject to the permitted election change rules. If Non elective contribution go towards the Dependent Care FSA, Health Savings Account or IND account, the employer s contribution is included in any maximum that applies to the account. The employer s contribution only changes if the employee gains or loses eligibility for the contribution. 44 22
Cafeteria Plan Design Strategies Non Elective Contribution Example 1 ABC Company has a cafeteria plan that offers employer sponsored medical insurance, dental insurance, Health Care FSA, Dependent Care FSA, Health Savings Accounts. ABC Company provides an employer contribution of $100 per month* that must be used towards the Health Care FSA. Employer contribution is in addition to up to $2,550 of employee s pretax election for Health Care FSA. (Potential: $2,550 + $1,200=$3,750) Employee cannot choose how to use the $100/mo. *Caution may cause Health FSA to be non excepted Health FSA. 45 Cafeteria Plan Design Strategies Review: Non excepted Health FSA Many of the ACA provisions only apply to a Health FSA if it is a non excepted benefit Must refer to the HIPAA regulations Most Health FSAs are Excepted Benefits Meet two conditions to be excepted benefits: Maximum Benefit Condition Availability Condition 46 23
Cafeteria Plan Design Strategies ACA Review: Non excepted Health FSA (cont.) Maximum Benefit Condition Health Care FSA annual election cannot exceed two times the employee s salary reduction for the plan year, or if greater, the amount of the employee s salary reduction election for the Health Care FSA, plus $500 Means, if employer contributes more than $500, employee must match or exceed Availability Condition Participants with Health Care FSA coverage must also have other group health plan coverage available during the plan year from the employer Means, employer must offer a group medical plan to the employee when the employee elects the health FSA 47 Cafeteria Plan Design Strategies Non Elective Contribution Example 2 ABC Company has a cafeteria plan that offers employer sponsored medical insurance, dental insurance, voluntary cancer, accident, short term disability and Health Care FSA, Dependent Care FSA, Health Savings Accounts. ABC Company provides an employer contribution of $25 per month* that can only be used towards the cancer voluntary insurance products. Employee cannot choose how to use the $25/mo. *Caution may cause voluntary plan to be an ERISA benefit. 48 24
ERISA plan or Voluntary Plan? REMINDER A health or welfare plan is subject to ERISA if it is established or maintained by the employer Requires the employer to be involved with the benefit to more than a minimal degree Note: If employer contributions are used to pay for individual voluntary products, it may cause voluntary benefits to be employer sponsored and subject to ERISA. 49 Cafeteria Plan Design Strategies Employer contributions Cashable Credits The employer may even provide a flex credit contribution that can be used for any benefits elected and allow additional unused dollars to be taken as taxable cash if the employee does not elect to spend all of the employer contributions on qualified benefits. These contributions are treated as cashable employer contributions (treated as if employee made the contribution) and the following rules apply: The amount of the employer cashable contribution the employee allocates to the Health Care FSA is included in the employee s pre tax election maximum. If a mid year event occurs, the employer s cashable contribution and any pre tax amount elected by the employee are subject to the permitted election change rules. 50 25
Cafeteria Plan Design Strategies Employer contributions Cashable Credits (cont.) The amount of the employer cashable credits that the employee allocates to the Dependent Care FSA, Health Savings Account or IND account is included in any maximum that applies to the account. If a mid year event occurs, the employer s cashable credits and any pre tax amount elected by the employee are subject to the permitted election change rules. 51 Cafeteria Plan Design Strategies Cashable Credits Example ABC Company has a cafeteria plan that offers employer sponsored medical insurance, dental insurance, Health Care FSA, Dependent Care FSA, Health Savings Accounts. ABC Company provides a cashable credit of $100 per month that can be used for options in the plan or taken as taxable compensation. If Employee elects to use cashable credits for the Health Care FSA, then the cashable credit is treated as employee dollars not an employer contribution and is part of up to $2,550 of employee s pretax election for Health Care FSA. Employees can choose tax free benefit or taxable cash. 52 26
Cafeteria Plan Design Strategies Cashable Credits Example (cont.) ABC Company may opt to require proof of other employer sponsored medical insurance before releasing the cashable credits as an alternative. ABC Company may require that employee use the dollars on core benefits first (Health, RX, Dental) before releasing the cashable credits. ABC Company may provide a cash amount that is less than the $100 per month (i.e. $50 per month) in consideration of the payroll taxes that the employer and employee will pay on the cashable amount and as an incentive to use the employer contributions (cashable credits) towards benefits. 53 Cafeteria Plan Design Strategies ACA ACA and Employer Contributions Flex Credits and/or Cash in lieu of health insurance Final Regulations 11/26/14: Minimum Essential Coverage and Other Rules Regarding the Shared Responsibility Payment for Individuals Treasury Department guidance: http://www.gpo.gov/fdsys/pkg/fr 2014 11 26/pdf/2014 27998.pdf Applicable Large Employers (ALE) (those with 50 or more employees) that provide flex credits in their Section 125 cafeteria plan and/or pay cash to employees that waive the employer s health plan. Keep in mind that Employer Shared Responsibility penalties are only applicable in 2015 for employers with over 100 Full time Employees. 54 27
Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) To count the flex credit for affordability purposes, three conditions must be met: 1. The employee does not have the option to take the flex credit as a taxable benefit (i.e. cash); 2. The flex credit may be used to purchase MEC; and 3. The flex credit may only be used to pay for benefits providing medical care under Internal Revenue Code 213. Prior to this guidance, assumption was that the entire flex credit could be counted as an employer contribution for affordability purposes. Now, employers may need to designate a portion of the total flex credit amount that may only be spent on benefits providing medical care (i.e.. medical, dental, vision and health FSA) to be able to count the flex credit in the affordability calculation. 55 Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) A cash opt out option (cash in lieu of benefits) must be added to the monthly premium for single coverage to determine whether that coverage is affordable. For example: Company A requires employees to pay $100 per mo. for single coverage. If the employee declines Company As health insurance and can prove they are enrolled in other group coverage, Company A will pay the employee an additional $150 per mo. as taxable wages less applicable payroll taxes. For purposes of affordability The monthly cost for single coverage would be $250 not $100. The employee must forgo the $150 per mo. in additional wages and pay a $100 per mo. in premium contributions to be enrolled in the coverage. 56 28
Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) Potential Issue ALE Employer with over 100 FTE (2015) and over 50 FTE (2016) Potential penalty of up to $3,000 for each full time employee that was offered unaffordable coverage in 2015. The fact that the plan is unaffordable does not automatically cause a penalty. The penalty applies only if that employee chooses not to enroll in the employer sponsored group medical plan and purchases subsidized coverage on the Health Insurance Marketplace ( Exchange ). 57 Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) Options? Leave the cash in lieu of benefits language in tact and measure affordability accordingly. Amend the flex credit language so only medical care benefits can be purchased but leave the cash in lieu of benefits language as is. Flex credit would count towards the cost of single health coverage and the plan could be affordable for more of your fulltime employees. The cash out amount that could be received needs to be added to the employee s share of single coverage premium for purposes of the affordability calculation. 58 29
Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) Options? (cont.) Amend the flex credit language so only medical care benefits can be purchased and amend your cash in lieu of benefits language to only pay cash to employees that waive family or limited family health coverage and provide proof that they are enrolled in another employer s group medical plan. This means that none of the employees paid the cash could cause a penalty since they are not enrolled in the Exchange. Flex credits would count toward the cost of single health plan coverage. You would still need to add the cash payment to the cost of enrolling in the lowest cost single plan. 59 Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) Options? (cont.) Amend the flex credit language so only medical care benefits can be purchased and amend your cash in lieu of benefits language to decrease the amount of cash paid that when it is added to the employee portion of the lowest cost single plan, that cost still is affordable. Only pay cash to employees that provide proof that they are enrolled in another employer s group medical plan. This means that none of the employees paid the cash could cause a penalty since they are not enrolled in subsidized coverage in the Exchange. To measure affordability you would add the cash payment to the cost of enrolling in the lowest cost single plan. 60 30
Cafeteria Plan Design Strategies ACA ACA and Employer Contributions (cont.) Options? (cont.) Amend the flex credit language so only medical care benefits can be purchased and remove the cash in lieu of benefits language. To measure affordability you only take into account the employee share of premium for single coverage. 61 Cafeteria Plan Design Strategies ACA ACA Market Reforms for Health FSAs For employers that do not offer a group medical plan or for those not eligible for a group medical plan through their employer, Health FSA is not an option. Possible to be eligible for employer sponsored group medical and decline coverage and still be eligible to participate in Health FSA because you meet eligibility criteria for the employer sponsored group medical. 62 31
Cafeteria Plan Design Strategies ACA IRS Notice 2013 54 Elimination of Stand Alone Health FSAs Application of the Market Reforms to Certain Health FSAs Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits? Answer 7: The market reforms do not apply to a group health plans that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant s salary reduction election). If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements. 63 Cafeteria Plan Design Strategies ACA Elimination of Stand Alone Health FSA Examples of Health FSAs that are ok Health FSA integrated with employer s major medical plan. Health FSA that provides an employer contribution that is less than $500 per plan year. Health FSA that provides an employer contribution only to those employees who participate in the employer sponsored medical plan. Health FSA that provides an employer contribution that is a matching contribution. Health FSA that provides an employer contribution that can be cashed out if not used on cafeteria plan benefits. Health FSA that is limited to dental and vision expenses. 64 32
Cafeteria Plan Design Strategies ACA Elimination of Stand Alone Health FSA (cont.) Examples of Health FSAs that are not ok Health FSA available to all employees, even those who are not eligible for the employer sponsored medical plan Check your eligibility definitions in your cafeteria plans Effective with the plan that renewed in 2014 Health FSA for Section 213(d) general expenses is offered when employer does not sponsor a medical plan Health FSA that provides an employer contribution that is greater than $500 per plan year that causes the health FSA to be a non excepted health FSA. 65 HRA Design Strategies 66 33
HRA Plan Design Strategies Elimination of Annual and Lifetime Coverage Limits HRAs that can have a limit HRA integrated with employer s major medical plan HRA that reimburses only dental or vision expenses HRA that only covers retirees or former employees (either annual funding or spend down account)* Examples of HRAs that cannot have a limit Non Integrated HRA that reimburses all Section 213(d) expenses for active employees Non Integrated HRA that reimburses individual insurance premiums for active employees IRS Notice 2013 54 no reimbursement for individual medical policies. HRAs integrated with medical plan must have an annual opt out. 67 HRA Plan Design Strategies HRA with High Deductible Health Plan First dollar reimbursement or should employee pay some out of pocket? What expenses are eligible? Deductible only, Coinsurance only, etc. HRA in correlation with Cafeteria Plan First dollar reimbursement or should employee pay some out of pocket? What expenses are eligible? Deductible only, Coinsurance only, etc. Which plan pays first? HRA in correlation with Cafeteria Plan (FSA) that includes an HSA Limited Health HRA Post Minimum HDHP Deductible HRA 68 34
HRA Plan Design Strategies Offer employee only reimbursement. Offer same flat dollar per Employee to cover an aggregate of expenses for Employees and/or any eligible tax dependents. Offer separate schedule of reimbursement in correlation with different tiers of insurance coverage. For example: $500 x 1 = $500 Single $500 x 2 = $1000 Limited Family $500 x 3= $1500 Family Retiree Only HRA. 69 HRA Plan Design Strategies HRA funds available up front vs. Pro rata each month Ordering Rules: HRA or FSA first by design Possible to Reimburse full annual contribution up front but not required. No Uniform Coverage Rule requirement* Promise to Pay vs. Trust Account Use or Lose by design, but not required. Carryover permitted but not required. Monetary Wellness Incentives added to HRA balance for those that complete Health Risk Appraisals or other Wellness Program activities *Different than Health Care FSA 70 35
Maximum Out of Pocket (MOOP) Limits and Early Health Plan Renewal Impact on Plan Design 71 How does ACA MOOP Affect Health Plan Design? ACA has Cost Sharing provision that applies to covered in network Essential Health Benefits Non grandfathered health plan cannot impose individual and family MOOP greater than amounts set by Health & Human Services (HHS) when plan renews each year Are different amounts than HDHP MOOP amounts set by IRS Cost Sharing Limit applies to each individual covered by the plan with family aggregate (embedded MOOP) 2015 ACA MOOP = $6,600/individual, $13,200/aggregate 2015 ACA HDHP=$6,450/individual, $12,900/aggregate 2016 ACA MOOP = $6,850/individual, $13,700/aggregate 2016 ACA HDHP=$6,550/individual, $13,100/aggregate 72 36
When does the HRA Need to be Amended for MOOP or Early Renewal? HRA generally mirrors health plan design What is the benefit year (not renewal date) of the health plan? i.e., is the deductible counted on a calendar year even though the health plan renews 7/1? HRA plan year should match benefit year of health plan e.g., HRA plan year should be calendar year if health plan deductible is calendar year IRS allows retroactive amendment of HRA Technically, since HRA is subject to SBC requirements, HRA should be amended 60 days prior the change in benefits (e.g., amend HRA in October for January change so SBC can be distributed by November 1) 73 When does the HRA Need to be Amended for MOOP? HRA generally needs to be amended anytime the health plan design changes or the employer decides to fund the HRA differently HRA can be amended at renewal or mid year Example: XYZ Corp. has calendar year $2,500 single deductible, $5,000 family aggregate with 9/1 renewal Current HRA design is first $1,250 single, $2,500 family paid by employee, HRA pays remainder of deductible. Beth incurs $1,750 in deductible expense prior to 9/1 Health Plan is renewing 9/1 with $3,000 single, $6,000 family deductible HRA needs to be amended to reflect new deductible amounts and how employer will fund reimbursement of deductible 74 37
How FSA, HRA and HSA can be used together 75 Advanced Plan Design Techniques Stacking of tax advantaged plans to gain greatest tax benefits for both employee and employer FSA and HRA HSA compatible HRA HSA compatible HRA, HSA, Limited Health FSA Limited Health FSA and HSA Limited HRA and HSA Limited HRA + HSA + Limited Health FSA HSA compatible HRA + Post HSA Deductible FSA Post HSA Deductible HRA + HSA + Limited Health FSA 76 38
Advanced Plan Design Techniques FSA and HRA: Health Care FSA with HRA that self insures part of the health plan deductible Example: Employer s HDHP deductible is $2,500/single, 2 x $2,500 ($5,000) per family. Deductible is embedded. Insurance pays 100% after deductible is satisfied. HRA design: Single plan: First $500*employee responsibility, remaining $2,000 paid 100% by HRA Family plan: First $500*( up to 2 x $500 per family) employee responsibility, remaining $2,000 x 2 ($4,000) paid 100% by HRA *The $500 share of the deductible per person that is the employee responsibility is eligible under the Health Care FSA. Remember: No double dipping. Can t take expense reimbursed by HRA and run through FSA a second time. 77 Advanced Plan Design Techniques HSA Compatible HRAs Example: Employer s HDHP deductible is $2,600/single, $5,200/family aggregate; 100% thereafter HRA design: Single plan: first $1,300* employee responsibility, remaining $1,300 paid 100% by HRA Family plan: first $2,600* employee responsibility, remaining $2,600 paid 100% by HRA Employee is eligible to fund Health Savings Account *2015 and 2016 minimum HDHP deductible. Family minimum deductible is aggregate for family. This might be met by one person depending upon family circumstances. 78 39
Advanced Plan Design Techniques HSA Compatible HRAs + HSA + Limited Health FSA Example: Employer s HDHP deductible is $2,600/single, $5,200/family aggregate; 100% thereafter HRA design: Single plan: first $1,300* employee, remaining $1,300 HRA Family plan: first $2,600*employee, remaining $2,600 HRA *2015 and 2016 minimum HDHP deductible. Family minimum deductible is aggregate for family. This might be met by one person depending upon family circumstances. Employee can fund HSA ($3,350 S and $6,650 F) 2015 Employee can also elect to participate in Limited Health FSA for predictable dental and vision expenses up to $2,550/plan year 2015 79 Advanced Plan Design Techniques Limited Health Care FSA with HSA Example: Employer sponsors a qualified HDHP and Employee enrolls in Single Coverage Employee funds a Health Savings Account up to $3,350 Single 2015 Employee can enroll in a Limited Health Care FSA up to $2,550 for 2015 for dental and vision expenses Why Enroll in FSA and HSA? Greater tax advantage for someone that uses all HSA dollars on medical care and has predictable dental and vision expenses (Potential: $3,350 +$2,550=$5,900) Preserve HSA balance for future expenses while using the Limited FSA for predictable current expenses No requirement that you fund or exhaust HSA funds before you use the Limited Health Care FSA 80 40
Advanced Plan Design Techniques Limited HRA and HSA Example: Employer s Limited HRA only reimburses Dental and Vision Expenses Limited HRA design: Single plan: $500 for any combination dental and vision expenses. First dollar coverage. Family plan: $1,000 for any combination dental and vision expenses. First dollar coverage. Employee is eligible to fund Health Savings Account 81 Advanced Plan Design Techniques Limited HRA + HSA + Limited Health FSA Example: Employer s Limited HRA only reimburses Dental and Vision Expenses Limited HRA design: Single plan: $500 for any combination dental and vision expenses. First dollar coverage. Family plan: $1,000 for any combination dental and vision expenses. First dollar coverage. Employee is eligible to fund Health Savings Account Employee is eligible to participate in Limited Health FSA up to $2,550/plan year (2015) no double dipping 82 41
Advanced Plan Design Techniques HSA Compatible HRAs + Post HSA Deductible Health FSA Example: Employer s HDHP deductible is $2,600/single, $5,200/family aggregate; 80/20 coinsurance thereafter HRA design: Single plan: first $1,300* employee responsibility, remaining $1,300 paid 100% by HRA Family plan: first $2,600* employee responsibility, remaining $2,600 paid 100% by HRA *2015 and 2016 minimum HDHP deductible. Employee could elect up to $2,550 in a Post HSA Deductible Health FSA (2015) FSA Reimbursement would be restricted to dental, vision and preventive care until employee certifies that they have met the minimum HDHP deductible. After that they can claim any general expenses not paid by the HRA (coinsurance and copays). 83 Advanced Plan Design Techniques Post HSA Deductible HRA + HSA + Limited Health FSA Example: Employer s HDHP deductible is $2,600/single, $5,200/family aggregate; 80/20 coinsurance thereafter HRA design: Single plan: first $1,300* employee responsibility, remaining $1,300 paid 100% by HRA Family plan: first $2,600* employee responsibility, remaining $2,600 paid 100% by HRA *2015 and 2016 minimum HDHP deductible. Employee is eligible to fund Health Savings Account Employee is eligible to participate in Limited Health FSA up to $2,550/plan year (2015) 84 42
Summary Defined Contribution in General Section 125, FSA, HRA, HSA Review Who can participate in FSA, HRA and HSA varies Affordable Care Act impact on plan design for FSA, HRA and HSA Cafeteria Plan Design Strategies HRA Plan Design Strategies How FSA, HRA and HSA can be used together to stretch any size benefit budget 85 Questions? Thank you for attending!! Any questions can also be addressed by e mail or phone: Compliance Department 800 346 21 26 compliance@ebcflex.com Visit our online blog: http://www.ebcflex.com/newscenter/compliancebuzz.aspx 86 43