Janet LeTourneau

  The Department of Labor (DOL) released “FAQs about Affordable Care Act Implementation (Part XXII)” on November 6, 2014. These three new FAQs, prepared jointly by the DOL, Health and Human Services (HHS) and the Treasury (collectively, the Departments), restate compliance information about premium reimbursement arrangements that pay individual insurance policies’ premiums with pre-tax dollars.

 My Broker World  columns from November and December of 2013 first reported on Notice 2013-54 about the inability of employers to reimburse employees or pay individual insurance policy premiums with pre-tax dollars. This notice took effect January 1, 2014.

 Now, due to some vendors’ continued marketing of products that allow employers to pay individual insurance premiums with pre-tax dollars or through an employer’s payment arrangement, the Departments have again shut the door on any perceived, supposed or imagined loopholes.

 Q1: My employer offers employees cash to reimburse the purchase of an individual market policy. Does this arrangement comply with the market reforms?

 A1: No. Employers may not use arrangements that provide cash reimbursement for the purchase of individual market policies. Such an employer plan is part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, regardless whether the employer treats the money as pre-tax or post-tax to employees.

 Such employer health care arrangements cannot be integrated with individual market policies and will violate PHS Act sections 2711 and 2713, among other provisions. The Departments already established that cash arrangements fail to comply with market reform and cannot be integrated with individual policies.

 Q2: My employer offers employees with high claims risk a choice between enrollment in its standard group health plan or cash. Does this comply with the market reforms?

 A2: No. PHS Act section 2705 prohibits discrimination based on one or more health factors. In the Departments’ view, cash-or-coverage arrangements offered only to employees with high claims risk are non-permissible benign discrimination. Benign discrimination does not favor highly-compensated employees. For instance, reducing the health insurance plan deductible for those who attend classes and follow through with recommended diet and exercise programs for specified diseases would be discrimination in a benign manner.

 Because of the choice between taxable cash and tax-favored qualified benefits, it is required to be a Code section 125 cafeteria plan. This imposes additional nondiscrimination testing. Depending on the facts and circumstances, this could also result in discrimination in favor of highly compensated individuals in violation of the Code section 125 cafeteria nondiscrimination rules.

 Q3: A vendor markets a product to employers claiming that employers can cancel their group policies, set up a Code section 105 reimbursement plan that works with health insurance brokers or agents to help employees select individual insurance policies and allow eligible employees to access the premium tax credits for Marketplace coverage. Is this permissible?

 A3: No. The Departments have been informed that some vendors are marketing such products. However, these arrangements are problematic. The arrangement described above is a group health plan and, therefore, employees participating in such arrangements are ineligible for premium tax credits (or cost-sharing reductions) for Marketplace coverage.

 Second, as explained in DOL Technical Release 2013-03, IRS Notice 2013-54 and two other IRS FAQs, such arrangements are subject to the market reform provisions of the Affordable Care Act (ACA). This includes a prohibition on annual limits and the PHS Act 2713 requirement to provide certain preventive services without cost sharing. Such employer health care arrangements cannot be integrated with individual market policies.

 PHSA mandates carry a high price for noncompliance. An excise tax of $100 per day for each individual to whom such failure relates (which is $36,500 per year, per employee) can be assessed under section 4980D and subsequently reported on Form 8928.

 Employers who have an arrangement described above that does not meet all IRS requirements for an employer plan will need to seek legal counsel for further guidance.

 The information contained in this article 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.

The Internal Revenue Service (IRS) and Social Security Administration have released the cost of living (COLA) adjustments that apply to dollar limitations set forth in certain IRS Code Sections. The Consumer Price Index rose enough since the third quarter of last year to warrant an increase in some, but not all, indexed figures for 2015.

Social Security and Medicare Wage Base

For 2015, the Social Security wage base increases to $118,500 from $117,000 in 2014. The Social Security rate of 6.2 percent is applied to wages up to the maximum taxable amount for the year; the Medicare portion of 1.45 percent applies to all wages.

In addition, starting with the 2013 taxable year, individuals are liable for a .9 percent “additional Medicare Tax” on all wages exceeding specific threshold amounts.

Indexed Compensation Levels

The indexed compensation level for determining who is considered highly compensated increased and remains unchanged for the key employee definition for 2015:

2012                2013              2014              2015

Highly Compensated Employee

$115,000       $115,000       $115,000       $120,000

Top Paid Group of 20 Percent      

$115,000        $115,000       $115,000        $120,000

Key Employee, Officer                  

$165,000          $165,000         $170,000         $170,000

401(k) Plans

In 2015 the maximum for elective deferrals increased to $18,000 for 2015 from $17,500 in 2014. The catch-up contribution for those 50 or older increased to $6,000 for 2015 from $5,500 in 2014. That means if you are age 50 or over during the 2015 taxable year, you may generally defer up to $24,000 into your 401(k) plan.

Health FSA

We started tracking an additional indexed figure in 2013 for the annual limit for participant salary reductions for the health flexible spending account (FSA). For plan years starting on or after January 1, 2015, the participant salary reduction amount to the cafeteria plan’s health FSA portion of the plan may not exceed $2,550. This is a $50 increase. However, this does not preclude employer contributions (as long as they are not convertible to cash) from being added to participants’ health FSAs.

Adoption Credit

For 2015 this tax credit increases from $13,190 to $13,400. The credit starts to phase out at $201,010 of modified adjusted gross income (AGI) levels and is completely phased out when modified AGI reaches $241,010.

The exclusion from income provided through an employer or a Section 125 cafeteria plan for adoption assistance also has a $13,400 limit for the 2015 taxable year. Remember—a participant may take the exclusion from income and the tax credit if enough expenses are incurred to support both programs separately.

Health Savings Account (HSA) Minimum deductible amounts for the qualifying high-deductible health plan (HDHP) increased to $1,300 for self-only coverage and $2,600 for family coverage in 2015. Maximums for the HDHP out-of-pocket expenses increased to $6,450 for self-only coverage and $12,900 for family coverage.

Maximum contribution levels to an HSA also increased for 2015 to $3,350 for self-only coverage and $6,650 for family coverage. The catch-up contribution allowed for those 55 and over is set at $1,000 for 2015. Remember, there are two requirements in order to fund an HSA: You must have qualifying HDHP coverage and no other impermissible coverage (such as coverage under another employer’s plan or from a health flexible spending account that is not specifically compatible with an HSA).

Archer Medical Savings Account (MSA)

For high-deductible insurance plans that provide self-only coverage, the annual deductible amount must be at least $2,200 but not more than $3,300 for 2015. Total out-of-pocket expenses under plans that provide self-only coverage cannot exceed $4,450. For plans that provide family coverage in 2015, the annual deductible amount must be at least $4,450 but not more than $6,650, with out-of-pocket expenses that do not exceed $8,150.

Although new MSAs are not allowed, maximum contributions to existing MSAs that are attributable to single-coverage plans is 65 percent of the deductible amount. Maximum contributions for family coverage plans are limited to 75 percent of the deductible amount. MSA contributions must be coordinated with any HSA contributions for the taxable year and cannot exceed the HSA maximums.

Dependent and/or Child Daycare Expenses

Just a reminder that although the daycare expense limit associated with a cafeteria plan is not indexed, the tax credit available through a participant’s tax filing was raised in 2003. The daycare credit must be filed on Form 2441 and attached to the 1040 tax filing form. Limits for daycare credit expenses are $3,000 of expenses covering one child and $6,000 for families with two or more children. If one of the parents is going to school full time or is incapable of self-care, the non-working spouse would be “deemed” as earning $250 per month for one qualifying child and $500 for two or more qualifying children. This “deemed” earned income is used whether a person is using the employer’s cafeteria plan or taking the daycare credit.

The cafeteria plan daycare contribution limit is $5,000 for a married couple filing a joint return or for a single parent filing as “Head of Household.” For a married couple filing separate returns, the limit is $2,500 each. The daycare credit is reduced dollar-for-dollar by contributions to or benefits received from an employer’s cafeteria plan. An employee may participate in his employer’s cafeteria plan and take a portion of the daycare expenses through the credit if he has sufficient expenses in excess of his cafeteria plan annual election but within the tax credit limits.

Commuter Accounts

For 2015 the monthly parking amount remains the same at $250. The 2015 monthly limit for transit also remains the same at $130.

Long Term Care

For a qualified long term care insurance policy, the maximum non-taxable payment remains at $330 per day for 2015.

Finally, by participating in a cafeteria plan, the participant will be lowering his income for the Earned Income Tax Credit (EITC). Check out the new limits in IRS Publication 596 “Earned Income Credit” and for more information about this tax credit.

The information contained in this article 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.

The IRS has released Notice 2014-15 containing two additional permitted change rules for health coverage under Internal Revenue Code Section 125 cafeteria plans. These election change rules for the premium portion of the plan are welcome changes for many employers with non-calendar cafeteria plan years and employees moving from full time to part time employment resulting in a reduction in hours.

These permitted elected change rules allow employees to revoke their elections group health insurance premium and seek coverage elsewhere under certain conditions, but this does not include election changes to the health FSA portion of the plan.

Reduction of Hours

Notice 2014-15 allows employees to change their elections under the cafeteria plan during their period of coverage, the plan year, due to moving from full time to part time employment resulting in a reduction in hours. They may revoke their election if they are still eligible or ineligible for the group health plan coverage.

Conditions for revocation due to reduction in hours of service:

 • An employee who previously was reasonably expected to average at least 30 hours of service per week now is reasonably expected to average less than 30 hours of service per week; even if the reduction in hours does not result in the employee ceasing to be eligible under the group health plan; and

 • The revocation of election from the group health plan corresponds to the intended enrollment of employee and spouse and dependents, if applicable, in another plan that provides minimum essential coverage with the new coverage effective no later than the first day of the second month following the month that includes the date the original coverage is revoked.

Marketplace Enrollment

Participants may now revoke elections for employer health coverage during a marketplace open enrollment period or a marketplace “special enrollment period.” For instance, this allows participants in non-calendar year cafeteria plans to switch from employer to marketplace coverage with no double coverage or loss in coverage for the transition period. Another example entails employees who may have a change in status event such as marriage or birth. They may not want to add new family members to their existing employer-provided coverage, but seek coverage for the family at the marketplace.

Conditions for revocation due to enrollment in marketplace qualified health plan (QHP):

 • Employee is eligible for a special enrollment period to enroll in a QHP through a marketplace, or employee seeks to enroll in a QHP through a marketplace during the marketplace’s annual open enrollment period; and

 • The revocation of election from the group health plan corresponds to the intended enrollment of employee and spouse and dependents, if applicable, in a QHP through the marketplace for new coverage effective no later than the day immediately following the last day of the original coverage that is revoked.

In either situation, the plan can rely on the reasonable representation of an employee that the employee and spouse and dependents, if applicable, have enrolled or intend to enroll in another plan that meets the above requirements.

The effective date of this notice is September 18, 2014. To allow the new permitted election changes under this notice, a cafeteria plan must be amended to provide for such election changes. The amendment must be adopted on or before the last day of the plan year in which the elections are allowed and may be effective retroactively to the first day of that plan year.

That means for a plan year that begins in 2014, at any time on or before the last day of the plan year that occurs in 2015. However, in no event may participant elections to revoke coverage be allowed to occur on a retroactive basis.

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use of or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.

Compliance is on everyone’s to-do list—even if it often gets pushed down the list. Especially now, as employers scramble to comply with the Affordable Care Act, they’re often asking themselves what new form needs to be filled out, or how to count their employees. In the rush and confusion to comply with new rules, it’s easy to forget old ones. This is a refresher course on just two compliance requirements for Internal Revenue Code Section 125 cafeteria plans that haven’t changed but are catching many by surprise.

The IRS issued regulations in 2007 to ensure that cafeteria plans do not unfairly provide benefits to employees who are considered “highly compensated” or “key.” It’s not within the scope of this article to define highly compensated or key employees, or to provide a finite listing of all compliance laws. This is a short “cheat sheet” reminder of two employer concerns: nondiscrimination testing and Form 5500 filing obligations.

What Are the Nondiscrimination Tests?

The overall “25 percent concentration test” compares all the FSA benefits elected by key employees with all the FSA benefits elected by non-key employees. Not more than 25 percent of the total benefits elected by all employees may be attributed to key employees.

Here’s an example. All elections to the FSA plan add up to $35,000. Of those total elections, key employee elections equal $5,000. Key employee elections are about 14 percent of the total elections to the plan ($5,000/$35,000). In this example, the FSA plan passes the 25 percent concentration tests.

The “55 percent average benefits test” involves just the dependent care portion of the FSA plan. The average dollar amount of benefits elected by non-highly compensated employees must be at least 55 percent of the average dollar amount of benefits elected by highly compensated employees.

In this example, let’s assume that highly compensated employees’ elections are $10,000 to the dependent care portion of the plan and there are five highly compensated employees in the company. Non-highly compensated employees elect $19,500 to the dependent care portion of the plan and there are 13 non-highly compensated employees. The highly compensated average dollar amount is $2,000 ($10,000/5). The non-highly compensated average dollar amount is $1,500 ($19,500/13). The average dollar amount of benefits elected by non-highly compensated employees  is 75 percent of the average dollar amount of benefits elected by highly compensated employees ($1,500/$2,000). In this example, the dependent portion of the FSA plan passes the 55 percent average benefits test.

The “25 percent owner test” compares the dependent care benefits elected by more-than-5-percent owners of a company with dependent care benefits elected by non-owners. Not more than 25 percent of the total dependent care benefits elected by everyone in the dependent care benefit may be attributed to more-than-5-percent owners.

An example of this test would consist of a $5,000 election to the dependent care portion of the plan by a more-than-5-percent owner and elections in the amount of $19,500 made by all non-owners. The more-than-5-percent owner’s election is 20 percent of the total benefits elected to the dependent care portion of the plan ($5,000 + $19,500 = $24,500) ($5,000/$24,500). In this example, the dependent care portion of the plan passes the 25 percent owner test because only 20 percent of the dependent care benefits were elected by the more-than-5-percent owner.

Eligibility, benefits available and contribution and benefits tests. These tests ensure that employers offer all benefits to an adequate number of employees, and benefits do not discriminate in favor of highly compensated or key employees.

In the event the cafeteria plan does not meet all the nondiscrimination requirements, employers may need to complete benefit election and payroll changes to bring the plan into compliance.

Form 5500 Obligation

A frequently overlooked responsibility for cafeteria plan sponsors is Form 5500 filings under certain circumstances. In fact, IRS Notice 2002-24 suspended the filing requirement imposed on cafeteria and fringe benefit plans in 2002. However, the filing requirement for welfare plans remains unchanged. That’s where the doubts start to creep into the minds of plan sponsors on filing requirements.

What Is a Welfare Benefit Plan?

Welfare benefit plans provide benefits such as medical, dental, life insurance, apprenticeship and training, scholarship funds, severance pay and disability. Health FSAs contained inside cafeteria plans and health reimbursement arrangements (HRAs) qualify as welfare benefit plans.

Who Must File a Form 5500?

Employers that sponsor welfare benefit plans covered by Title I of ERISA are required to file a Form 5500 for those plans. However, there are a couple of exceptions that apply, depending on the type of employer sponsoring the plan. A general exception applies to:

 • a governmental plan; or

 • a church plan under ERISA Section 3(33).

The plan may not be exempt from filing if:

 • it is deemed to have plan assets;

 • plan funds are separated from the employer’s general assets;

 • plan funds are held in trust; or

 • plan funds are forwarded to a third party administrator.

Most non-exempt employer plans will complete all questions on Form 5500, including 5, 6a through 6d, 8b, and 9a and 9b. Depending on the funding arrangement or payments from the plan, attaching schedules may be applicable.

The 2009 “Instructions for Form 5500” have been modified to make clear that plans that are paid from the general assets of the employer need not file Schedule C.

When Does a Welfare Benefit

Need to File a Form 5500?

Forms must be filed by the last day of the seventh calendar month after the end of the plan year. A plan may obtain a one-time extension of time to file. Form 5558 must be sent by the original due date in order to gain a two-and-a-half-month extension of time in which to complete and file the Form 5500.

Compliance becomes less scary for employers through knowledge. It’s as easy as suggesting they contact their plan administrators or their own accounting or legal sources for more information and guidance.

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use of or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.

Toward the end of 2013 I wrote two columns concerning Health Reimburse­ment Arrangements (HRAs) and Health Flexible Spending Accounts (FSAs) and how the Affordable Care Act (ACA) and Notice 2013-54 changed the rules that employers must follow.

So far during 2014 I have spoken with myriad employers that did not know changes needed to be made to their benefits plans or didn’t fully understand how to implement the changes. Enrollment season is just around the corner, so I thought I would repeat, in a condensed manner, the 2014 rules for health FSAs offered through cafeteria plans and a reminder about permissible HRAs.

Health FSAs

Health FSAs must be designed to be considered an “excepted benefit.” This is not a new rule that just started in 2014; there is a HIPAA excepted benefit rule that has been in place for many years. If the health FSA was an excepted benefit under the HIPAA certification requirement and the employer offered a group health insurance plan, the health FSA could then be exempt from offering COBRA if the health FSA was overspent.

There are just two rules to follow in order to offer health FSAs: 1) Employees must be eligible for employer-sponsored ACA-compliant group health plan coverage, and 2) employer contributions to the health FSA are limited to $500 or equal to the participant’s election, if greater.

Here’s an example of employer contributions to the health FSA that meet the maximum benefit condition:

 • A one-for-one employer match. (Em-­

ployer $600, employee $600.)

 • An employer contribution of $500 or less. (Employer $500, employee $200.)

These scenarios do not meet the maximum benefit condition:

 • Employer contributes more than $500, if employee contributes $500 or less. (Employee election $400 and employer contribution $600.)

 • Employer contribution in excess of one-to-one match, if employee contributes more than $500. (Employer contributes $700, employee contributes $600.)

If the health FSA only allows for employee salary reduction contributions, then the only rule to consider is whether each participant in the health FSA is also eligible for the employer’s ACA-compliant group health plan.

ACA rules for health FSAs include a requirement that over-the-counter drugs and medications be prescribed by a physician in order to be reimbursable and the health FSA must be limited to $2,500 for any cafeteria plan year. If the cafeteria plan is running on a short plan year, the $2,500 is prorated for each month in the short plan year.

Limited-purpose health FSAs may also be offered, perhaps in conjunction with HSAs, that provide for just vision and dental expenses. Vision and dental expense reimbursement plans are excepted benefits.

HRAs

Starting on January 1, 2014, HRAs must be “integrated” in order to offer reimbursement of all medical, dental and vision expenses. Acceptable integration methods are divided into two categories: 1) Minimum Value (MV) method, and 2) MV not required method.

Both methods require:

 • HRA participants must be eligible for and participate in an employer-sponsored ACA-compliant group health plan. (An HRA cannot be integrated with individual policies.)

 • Employees may certify coverage under spouses’ ACA-compliant group health plan.

 • Participants must have the option, annually, to permanently opt out and waive future reimbursements.

 • HRAs should forfeit remaining balances upon termination to allow marketplace tax credits.

In addition, the MV method requires underlying group health plans to provide MV and that HRA benefits be available for all or a subset of IRS Code Section 213(d) eligible medical expenses and premiums for ­employer-sponsored group health plans. The MV not required method requires HRA benefits to be limited to co-payments, co-insurance, deductibles and premiums for group health plans and IRS 213(d) eligible medical expenses that do not constitute essential health benefits covered by the other group health plan.

Retiree HRAs and HRAs that provide excepted benefits such as vision and dental expenses may continue to be utilized by employers and do not have to meet the conditions noted above.

HRAs that cannot continue include non-integrated arrangements and HRAs that are integrated with individual insurance policies or that pay premiums for individual health insurance policies. These types of plans are not ACA compliant and carry a stiff penalty of $100 per day, per participant for every day they are in existence. That’s $36,500 per year due for each and every participant in a non-compliant plan.

There is, however, a transition period for ineligible HRAs that were in place as of January 1, 2013. Balances as of December 31, 2013, are frozen (that is, no additional funds may be added) and unused funds may be “spent down.” There is no time limit on the spend-down transition and it can also be utilized for participants who terminate employment.

Both health FSA and HRA waiting periods need to be coordinated with employer-sponsored group health plans. Make sure that both health FSA and HRA waiting  periods are not shorter than the group health plan waiting period. ACA-compliant group health plans generally have a maximum 90-day waiting period prior to enrollment. Have employers check both plan documents to ensure that employees are not eligible for health FSAs prior to being eligible for group health insurance plans.

Last note: Don’t forget about the latest, greatest feature for health FSAs—carry over. Up to $500 of unused health FSA funds may be carried forward from one year to the next. Employers need to update their plan document before the end of their current plan year in order for employees to take advantage of this great benefit.

Check with your employers on all these important points and start out 2015 with appropriate, compliant flexible benefits.

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use of or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.

In the past I have repeatedly beaten the drum for Health Reimbursement Arrangements (HRAs) as the tool employers can use to fight health care expense inflation, save health care dollars and get employees more engaged in health care purchasing decisions. In light of new requirements set by the Affordable Care Act (ACA), however, HRAs may be a little more complex to pull off.

In September of 2012 I first wrote about this subject. Since that time, both HRAs and health care flexible spending accounts (health FSAs) have been impacted by the ACA.

This article doesn’t have space to detail all the changes that HRAs experienced in the last couple of years, but here are the “big three.”

 1. Comparative Effectiveness Research (CER) Fees. Generally, all HRAs are required to pay the CER fees unless they consist solely of excepted benefits such as vision and dental expenses. The fee is $1.00 per participant. This fee is effective for HRAs with a plan year that ends on or after October 1, 2012. For the following plan year the rate will be $2.00 per average covered life with fees indexed each year thereafter. These fees are paid by the employer—the plan sponsor.

 2. Because of health insurance prohibition on annual and lifetime limits that started January 1, 2014, and other regulations such as Notice 2013-54 enacted since 2012, HRAs must be integrated with an underlying health plan that is an ACA-compliant employer-sponsored group health plan. “Stand-alone” HRAs are no longer allowed.

 3. Summary of Benefits and Coverage (SBC). For HRAs that are not “excepted benefits,” a standardized eight-page summary of the benefits tendered through the plan needs to be presented each year to every eligible employee covered by the HRA. The employer is required to fulfill this requirement. SBCs provided by health plans integrated with HRAs should include HRA language. If this is not the case, then the HRA would need to provide a separate SBC.

This article provides insight into using cafeteria plans to compensate for HRAs’ future burden of reporting complexity, cost or design limitations. All these factors may well make cafeteria plan health FSAs a very tasty alternative choice on employers’ “menus” of benefits.

Health FSA Bonus

Effective for 2014 health FSA plan years, employers have the option of allowing participants to carry over up to $500 of unused funds from one plan year to the next. The carried-over amount does not affect the maximum amount ($2,500 adjusted for inflation after 2012) of participant salary reduction contributions for the next plan year.

Switch Employer Health Care Funding

from an HRA to an FSA

Let’s be right up front—the one big difference between HRAs and health FSAs is the availability of the money. Health FSAs must make annual election amounts available on the first day of the plan year, regardless of contributions made to date. This may dissuade a few employers, but the gains outweigh the obstacles of employer pre-funded accounts.

In fact, it’s best to remind employers about pre-funded health FSAs and then remind them of their tax savings with some dynamic facts. One example might be how a small employer with 100 employees realizes big tax savings with a cafeteria plan.

This extreme example assumes a turnover rate of 50 percent that occurs within six months of the beginning of the plan year, with the entire annual election reimbursed to those in the health FSA at time of termination.

The employer realizes a savings of almost $25,000 through the cafeteria plan.

If employers are willing to expend dollars for health care expenses through an HRA, surely they’d agree to put those same dollars to work in a health FSA…The money can still be isolated for certain expenses such as copayments and deductibles. And, with the incentive of contributing a match for every dollar a participant contributes, participation in the health FSA could mean even greater tax savings for the employer.

Employer matching contributions means employers make money available only to those contributing to the cafeteria plan. If employers want to contribute lump sums to the health FSA, it would have to be done in a nondiscriminatory manner and could not be greater than $500 of employee elections. For those not making an election to the health FSA this means only $500 may be placed into their accounts. For those making elections, an additional $500 would be placed into participants’ accounts.

Special rules apply to employer contributions. Please consult with an advisor prior to establishing employer contributions for cafeteria plans.

Want to learn more about changes to HRAs and health FSAs? Check out our compliance website at www.wageworks.com/employers/employer-resources/compliance-­briefing-center/legislation-and-reform.aspx

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use of or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.

Here’s a “Top Ten” list of reasons why employers and employees should establish health savings accounts (HSAs).

  10  HSA-eligible high-deductible health plans can save premiums for employers and employees.

  9  HSAs belong to the account holder and are retained by the participant when changing jobs.

  8  HSA contributions are non-taxable.

  7  HSA growth through interest and dividends is non-taxable.

  6  Disbursements for qualified medical expenses are non-taxable.

  5  There is no dollar limit to the amount that may accumulate in an HSA.

  4  The maximum annual contribution may be deposited into an HSA even if it is established mid-year.

  3 HSAs roll over from year to year. Funds can accumulate for expenses incurred during retirement.

  2 Anyone, including both the employer and the employee, can contribute to an individual’s HSA during the year.

  1 HSAs’ indexed figures are released earlier than any other benefits’. Here are the 2015 HSA limits:

Health Savings Account                                     2014         2015

Minimum deductible for the qualifying high-deductible health plan (HDHP)

 Individual Coverage                                             $1,250      $1,300

 Family Coverage                                                 $2,500       $2,600

Maximum Contribution Levels

 Individual Coverage                                             $3,300      $3,350

 Family Coverage                                                $6,550       $6,650

 Catch Up Contribution for Those 55 and Over    $1,000       $1,000

Maximum for HDHP out-of-pocket expenses

 Individual Coverage                                             $6,350      $6,450

 Family Coverage                                                $12,700    $12,900

Congress mandates that cost-of-living adjustments for HSAs must be released by June 1 of every year. The early release of HSA minimums and maximums each calendar year ensures that plan sponsors and their employees have ample time to review plan design options and prepare brochures and educational materials ahead of open enrollment.

The information in this article 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.

The million dollar question? How do we engage employees in their own health care while they are eating triple cheeseburgers and fried chicken by the bucket? We try to get inside employees heads and figure out the why behind such counterproductive behavior. (Full disclosure: I’m eating a cookie with my afternoon tea as I write this, simultaneously patting myself on the back that I didn’t grab two cookies.) The basis for our decisions about food is often not rational, but it’s fairly simple: It’s fast, convenient and it tastes great.

So how do medical plans and employers make their benefits less costly and “taste great”? I believe it starts with giving employees the employer’s rationale for medical plan design—sharing what employers value and engaging employees to value their own health. After all, true health reform starts with the individual. So here are a few ways to let employees know what’s valued without costing a bundle of cash.

Removing Barriers to Good Health

Offer low- or no-charge services and focus on healthy habits. If having an annual mammogram is valued by the medical plan and is important to early detection of breast cancer, then it should be provided at no cost. That’s one tenet behind this requirement in the Affordable Care Act (ACA). This applies not only to mammograms, but also to a host of other preventive services, all of which must be provided without cost-sharing.

The ACA requires that preventive services be available without cost-sharing to women beginning with health insurance plan years started on or after August 1, 2012. The Department of Health and Human Services (HHS) values preventive care. As an example, HHS mandated that certain preventive services such as well-woman visits, mammograms, gestational diabetes screening, counseling and contraception services be among those provided without participant cost-sharing. And it’s not just for women. Insurance plans are mandated to cover preventive services for men, women and children.

Employers need to ensure that employees know about these valuable benefits and that time during work hours may be used for these exams and treatments. This is where the agent or broker can step in with value-added services. Guide employees toward their insurance information sheets. Point out services that are provided at no cost to them.

ACA to the rescue again. For enrollments that began on or after September 23, 2012, a Summary of Benefits Coverage (SBC) must be furnished to all employees for each insurance plan offered by the employer. What does the SBC say? That’s the great part. Each SBC for every plan offered relates the same information in the same manner. Employees can truly compare plans.

This short form details overall deductible, deductibles for specific services and out-of-pocket limits, plus many more specifics of the plan. And every SBC is in the same order and answers common questions concerning the plan. Coverage examples are also included in the SBC, illustrating medical amounts covered by the plan and patient responsibility. Walk through an SBC with employees to empower them with the knowledge they need to better understand coverage, options and benefits available.

Let’s Play—Wellness Games

Not everyone can be or wants to be thin as a runway model. All I’m talking about here is starting a buzz to get employees engaged and excited about taking responsibility for their health. Wellness incentives can be as simple as encouraging non-medical solutions. Derail the attitude of, “Why walk if I can take a pill to control diabetes?” Employers need to convey the idea that they value the health benefit of walking, and the implementation of self-care.

Walking programs can often begin with a “steps” contest. Reward those with greater numbers of steps on their personal pedometers. Please don’t call it a walking program. What about a contest for the best nature photo? Employees walk around their own neighborhood or go to the zoo to take pictures. Even better—discounted or free admission to the local zoo, botanical garden or arboretum. Employees might find it fun and return for more walking adventures. It’s comparable to secretly dropping added vegetables onto a pizza or into a meatloaf. I’ve also heard that’s a great way to use all those zucchinis from the garden.

Some employers have eliminated the typical meeting in a conference room with lunch provided in favor of walking meetings. Employers can hand out pedometers or Fitbits (an electronic pedometer and more) as a way to open their employees’ (and their own) eyes about just how active—or sedentary—they are throughout the day.

Another employer idea for those employees in the same location—no internal email days, which forces employees to get up and move to interact with their colleagues. Not only does this engage employees in activity, but face-to-face interaction can be a refreshing change to our tendency to only e-communicate.

Wellness initiatives come with free advertising. The best sales people are the ones who see results, and it’s very empowering when people lose weight, improve their fitness levels and feel better. They’re also not shy in telling everyone about their progress.

However, employees can’t participate in wellness programs if they don’t know about them. Employers complain that employees don’t read their emails or respond to flyers posted in the office. Several years ago I read a great tip about getting employees to read employer bulletins. Post them in the bathroom. Okay, I’ll go right ahead and say it: Put them in the stalls and on the walls. Where else do all employees end up at least once a day, and hopefully where distractions are at a minimum?

Employee Skin in the Game

If employees are not engaged at all, the employer can try a Consumer Directed Health Plan (CDHP).

Start with a CDHP and add in health reimbursement accounts (HRAs) or flexible spending accounts (FSAs). Give employees an incentive to spend wisely on health care by utilizing an HRA that requires employees to pay first-dollar coverage before the HRA kicks in. Alternatively, put in a qualified high-deductible health plan (HDHP) and pair it with health savings accounts (HSAs) or FSAs.

Have smokers pay more in premiums than non-smokers. Smoking is the leading cause of preventable death, and the government is helping employers with graphic, gross pictures on cigarette packages. The introduction of vapes is another way of improving health whilst still smoking. Vapes are healthier for people, meaning that they help to lessen the chances of death. Employees might want to consider switching to vaping, especially if it means they will live a healthier lifestyle. They’ll need to ensure they have a reliable vape tank though, this is why some people purchase the parts for their vape individually to ensure that each part will work well. Hopefully, your employees will decide to quit smoking, but this choice is up to them.

What’s for Dinner—Practical Reality

Let’s get real. Most employers are not going to provide a healthy, tasty lunch to their employees every day, but they can give them the gear to survive dinner at home. There’s a plethora of ideas to pull off the internet.

A week’s worth of recipes and shopping lists are available from many websites. Workers who feel they need cooking lessons can be pointed to the nearest cooking website. However, no matter one’s expertise in the kitchen or overall health, everyone needs ideas for dinner. I love to cook—it’s deciding what to fix that makes me comatose and running for local take-out.

Employers can check out neighborhood grocery stores and weight reduction programs. Most full-service grocery stores have nutritionists on staff who will talk to groups and even offer a walking tour of the store. Encourage employees to stick to the store’s perimeter, where fresh foods are located.

How about asking employees for their best recipes? There’s nothing like a challenge to bring out the best food ideas. Award a prize for a healthy recipe with the most protein and least calories, or an entire dinner for four that costs less than $10. Ask employees to submit recipes for vegetarian dishes or ones that include a specific ingredient.

Money Talks, but Value Lasts

What happens after health risk assessments? Participants get $5 off every premium payment and they continue on with their lives. How compelling does information have to be? How can employers reach employees and make them understand that this is important to them?

Employers need to let employees know and understand what they value and make important, decision-making information readily available. Don’t want employees to use the emergency room? Make alternatives clear that include phone numbers and urgent care locations.

Employers can establish a health risk assessment program, but it needs to dovetail right into a customized management plan. What’s the use of knowing I have a predisposition for diabetes if I don’t know the steps to take right now to prevent the disease? Participants need real-life customized health management solutions to help reach their health goals.

Retirement

Employers can play the retirement card. Have employees write down three things they want to do when they retire. Then ask them to imagine doing those same things if they are in poor health. The joy of a carefree day is reduced to stopping to rest and counting medications.

Nearly everyone thinks about their retirement years. Besides having enough money saved, they need to think about their health. All the money in the world can’t buy health. The goal is to arrive at retirement with enough money and good health. Then keep both of them as long as possible. Latest estimates are that about $250,000 is needed for out-of-pocket health care expenses throughout retirement for a couple retiring at 65.

A focus on wellness starts from the top down. Engaging owners and human resource staff is the first step in any employee benefit program. You don’t have to be a wellness expert, just put a bug in employers’ ears about low-cost or no-cost wellness incentives. Small employers would certainly welcome the low-dough approach. 

No information contained herein is intended to be legal, accounting or other professional advice. We assume no liability whatsoever in connection with your use or reliance upon this information. This information does not address specific situations. If you have questions about your specific situation, we recommend that you obtain independent professional advice.

The words “use-it-or-lose-it” may have kept many employees from participating in employers’ flexible benefits plans because of their aversion to forfeiting even small amounts of their contributions. In response to numerous comments and overwhelming requests for carryover of unused funds for health flexible spending accounts (health FSAs), Notice 2013-71 was released on October 31, 2013.

The notice contained modifications to the rules for IRC Section 125 cafeteria plans that speak to several concerns the public expressed. First, the difficulty involved in predicting future medical expenses and the possibility of losing money at the end of the plan year. Second, minimizing incentives for unnecessary spending at the end of a plan year or “grace period” to avoid losing money.

Employers may now, at their option, adopt an amendment to their cafeteria plans to provide a carryover to the immediately following plan year of up to $500. Unused amounts remaining in a health FSA are determined at the end of the plan’s run-out period. “Run-out” is the days allowed after the end of a previous plan year in which to turn in expenses incurred in the previous plan year.

Uniform Coverage

The uniform coverage rule requires that the maximum amount of reimbursement from the health FSA be available for claims incurred at all times during a participant’s period of coverage. In other words, the employer is liable to pay eligible health care expenses up to and including a participant’s annual election, regardless of the amount of contributions received by the plan. This rule continues to apply to cafeteria plans adopting the carryover provision. This means carryover amounts up to $500 from the previous plan year are generally available on the first day of the new plan year.

The Facts

 • The participant must be an active participant in the plan as of the last day of the plan year.

 • Once the new plan year starts, participants still have all their funds from the previous plan year to spend on qualified expenses incurred in the previous plan year.

 • Previous plan year contributions may be used for current year expenses to the extent that the current year election is depleted.

 • Any carryover may not allow unused amounts to be cashed out or converted to any other taxable or nontaxable benefit. This means a participant cannot use carryover funds from a health FSA to fund a dependent care benefit.

 • Carryover is only applicable to health FSAs. However, plans may still allow “grace periods” for dependent care FSAs.

 • Unused amounts in excess of $500 (or a lower amount specified in the plan) that remains as of the end of the plan year, after run-out, is forfeited. As is any remaining amounts in an employee’s health FSA as of termination of employment if COBRA is not elected.

 • Carryover is an alternative to the “grace period.” If employers amend their cafeteria plans to allow health FSA carryover, they must remove the “grace period” language from the health FSA benefit.

More good news. The carryover does not count against or otherwise affect the indexed $2,500 salary reduction health FSA limit applicable to each plan year. For example, participants may elect $2,500 for the 2015 plan year and add their leftover funds, up to $500, from the 2014 plan year. Plus, any employer contributions to the plan, within certain limitations, may be made available in addition to the participant election and carryover amounts.

When details of health FSA carryovers exploded on October 31, 2013, the benefits world saw the end to the “use-it-or-lose-it” rule. It also saw a torrent of questions surrounding the characterization of the carryover funds and COBRA and nondiscrimination questions. Having dollars carry over from one plan year to the next is great. But how are these excess funds treated in the new year for health savings account (HSA) eligibility, COBRA eligibility and premiums, W-2 reporting requirements and discrimination testing?

Health FSA Carryover and HSA Eligibility

What’s the difference between the “grace period” extension and this new carryover feature, and why should participants care?

The “grace period” allowed participants to use previous year contributions in a general-purpose health FSA for current year eligible expenses. However, at the end of the “grace period” any leftover funds were forfeited, and participants were eligible to set up and contribute to an HSA.

Carryover allows participants to move leftover contributions from one plan year to the next. Carried over general-purpose health FSA funds would be considered ineligible health care coverage for the entire current year and preclude participants from setting up or contributing to an HSA.

To avoid losing HSA eligibility for the full year, general-purpose health FSAs may carry over into the current year as a limited-purpose health FSA either because the participant is enrolled in a limited-purpose health FSA in the current year, or the participant elected to have the carryover funds become a limited-purpose health FSA election for the current year. The participant could also waive any leftover funds from a previous year general-purpose health FSA to prevent disqualification for HSA coverage.

As an example: Joe had 2014 excess contributions from a general-purpose health FSA in the amount of $600 and a new 2015 election of $2,500 in a limited-purpose health FSA. Joe submits an eligible dental/vision expense in the amount of $2,700 at the beginning of 2015. From the current year limited-purpose health FSA, $2,500 is paid. In February Joe submits and is reimbursed from the general-purpose health FSA $300 for eligible expenses incurred in 2014. At the end of the run-out period, $300 in ­general-purpose health FSA funds is unused and carried over to the HSA-compatible health FSA. Joe is paid $200 for the excess of the January claim over the amount elected, and $100 remains in the HSA-compatible health FSA for vision and dental expenses incurred in 2015.

In addition, Joe is allowed to contribute to his HSA as of January 1, 2015.

Health FSA Debit Card Credits

Debit card credits would apply to the plan year in which the original claim was paid. Credits received after the beginning of new plan years, for purchases made in previous plan years, must be credited and used for previous year expenses. If not used for previous year expenses, these credits could be included in carryover amounts.

COBRA Continuation

Employers should take into consideration the carryover funds for determining eligibility but not for establishing COBRA premiums. COBRA is generally not offered to health FSA participants if they have overspent their accounts. In determining if disbursements exceed contributions, the current year contributions and carryover funds are used. For example, Jane had $400 carried over from 2014 and elected $1,500 in the health FSA for 2015. On June 30 she terminates employment, having contributed $750 and been disbursed $900. Taking into consideration the carryover, her contributed-to-date is $1,150 ($750 + $400). Jane’s available balance at termination ($1,000) is higher than her required COBRA premiums ($750), thus requiring COBRA to be offered.

In the example above, COBRA premiums are based on the $750 remaining balance of current year elections. Jane’s premium would be $125 per month for the next six months, not including any service charges that might be applied. Keep in mind—if COBRA continuation is not elected for a plan year, the participant would not be eligible for carryover the following year. Carryover candidates must be active participants in the plan as of the last day of the plan year.

Coverage periods for COBRA are generally 18 months. If COBRA is elected and premiums paid through the end of the plan year, participants are considered active past the end of the health FSA plan year and therefore have access to the carryover amount into a subsequent plan year. The COBRA premium for a participant making no election in the subsequent plan year would be zero for the carryover amounts.

Miscellaneous Items

Employers also have options to:

 • Impose limitations (e.g., three years) on carryover funds so that these funds would expire at a certain point and not be carried forward for an indefinite period of time.

 • Impose a dollar amount limit (e.g., $1 to $10) on the minimum amount that may be carried over from one year to the next.

 • Charge an administrative fee to employees with only rollover dollars in their health FSAs to reduce the carryover into the following plan years.

Employers would ignore carryover amounts for W-2 reporting purposes and for nondiscrimination purposes. The contributions, in both cases, were counted in the year they were contributed.

Further guidance, in the form of IRS Chief Counsel Memo No. 201413005, was published by the IRS on March 28, 2014, supporting the options and issues discussed in this article (www.irs.gov/pub/irs-wd/1413005.pdf) 

The information contained in this article 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.

On December 13, 2013, the Tri-Agencies— Internal Revenue Service (IRS), Department of Labor (DOL) and Health and Human Services (HHS)—released proposed regulations that provided clarification and requested comments to ensure that certain health flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) could include specific benefits and still be considered excepted benefits. This clarification will make it easier for plan sponsors to continue to offer health FSAs and HRAs to their employees.

Background

New Affordable Care Act (ACA) rules kicked in on January 1, 2014, that affect flexible benefits plans. I discussed the new rules of Notice 2013-54 in my November and December articles. Bottom line, FSAs must be considered “excepted benefits” to be offered to employees, and HRAs must be integrated, a retiree-only plan or a limited scope HRA that provides only dental and vision expense reimbursement.

After release of Notice 2013-54, questions arose from employers and third party administrators (TPAs) about the rules surrounding limited scope vision or dental plans. These types of plans must be provided under a separate policy, not be an integral part of a group health plan, participants must have the right not to receive coverage for the benefit, and if the participant elects coverage he must pay an additional premium. This is problematic, since an HRA must be paid solely by the employer. The HRA could not accept employee salary reductions.

Clarification was requested by Wage­Works and other TPAs from the Tri-Agencies to ensure that certain health FSAs and HRAs could include limited scope vision and dental plan benefits and still be considered excepted benefits.

Health Plan Excepted Benefits

The new proposed regulations amend the definition of limited excepted benefits to: 1) eliminate the requirement that participants in self-insured plans pay an additional contribution for limited scope vision or dental benefits; 2) allow plan sponsors in limited circumstances to offer “wraparound” coverage to individuals who, but for the un-

affordability of the premium, would receive benefits from their group health plan; and 3) define “significant benefits” for employee assistance plans. Following a comment period, final regulations will be issued.

 The proposed regulations outline four categories of excepted benefits:

 • The first category is benefits that are generally not health coverage. This includes automobile insurance, workers compensation, and accidental death and dismemberment coverage.

 • The second category is benefits that cover a limited list of medical conditions. For instance, limited scope vision and dental benefits and benefits for long term and nursing home care, home health care or community-based care. Limited benefits must either be: 1) provided under a separate policy or 2) otherwise not be an integral part of a group health plan.

Certain health FSAs also fall into this category, provided that all health FSA participants are eligible for the underlying employer-provided major medical coverage and that employer contributions are limited to an amount up to $500 or a dollar-for-dollar match of each participant’s election.

Also under this category are integrated HRAs that may only cover employees who are also eligible and participating in employer-provided major medical coverage and retiree-only HRAs.

 • Category three is referred to as “non-coordinated excepted benefits” and includes specified disease or illness coverage and hospital indemnity or other fixed indemnity insurance. These benefits are only excepted if the benefits are provided under a separate policy, there is no coordination of these benefits and any exclusion of benefits under any employer-provided major medical coverage, and the benefits are paid with respect to any event without regard to whether benefits are provided under any group health plan maintained by the same plan sponsor.

 • And finally, the fourth category includes supplemental excepted benefits. These are policies that offer coverage supplemental to Medicare, CHAMPVA, Tricare or similar coverage that is supplemental to coverage provided under a group health plan and is provided under a separate policy, certificate or contract of insurance.

Limited Wraparound Coverage

Some group health plan sponsors asked whether wraparound coverage could be provided for employees for whom employer group health insurance premiums are too expensive and who would rather obtain coverage through an exchange. This approach would allow employers to offer benefits to those acquiring coverage on the exchange that is comparable to the group health plan coverage. Wraparound coverage could not replace group coverage, but would provide additional coverage to individuals and families enrolled in non-grandfathered individual health insurance coverage.

Under specific circumstances, starting in 2015 proposed regulations would allow a wraparound plan to be an excepted benefit if:

 • The participant is covered by a non-grandfathered individual health plan that does not consist solely of excepted benefits;

 • Coverage is specifically designed to provide benefits beyond those offered by the individual health insurance coverage, such as reimbursing the cost of out-of-network provider costs;

 • The wraparound is not an integral part of a group health plan. The plan sponsor must sponsor another (besides the wraparound) group health plan meeting minimum value. This primary plan must be affordable for the majority of those employees eligible for the primary plan and only individuals eligible for the primary plan may be eligible for the limited wraparound coverage;

 • The wraparound plan must be limited in amount. The total cost of the coverage must not exceed 15 percent of the cost of coverage under the primary plan; and

 • The wraparound plan must be nondiscriminatory as to eligibility, benefits or premiums based on any health factor of an individual or impose any preexisting condition exclusion. It also must not discriminate in favor of highly compensated individuals.

Here’s a simple example of a wraparound plan: The employer provides an HRA that covers chiropractic, adult vision and dental costs, or a hospital admission fee not covered by the individual policy, and meets all of the requirements outlined above.

Employee Assistance Programs

Employee assistance  programs (EAPs) are programs offered by employers that typically provide very limited benefits to address circumstances that might otherwise adversely affect employees’ work and health. Unfortunately, some EAPs that provide a few benefits beyond the scope of very limited benefits might be enough to disqualify employees from obtaining premium assistance on exchanges.

The DOL guidance provides welcome clarification that, starting in 2015, EAPs will be excepted benefits if the program:

 • Does not provide significant benefits. This is defined as programs that provide 1) no inpatient care benefits, 2) no more than 10 outpatient visits for mental health or substance use disorder counseling, 3) an annual wellness checkup, 4) immunizations and 5) diabetes counseling;

 • Cannot be coordinated with benefits under another group health plan;

 • Does not require any employee premiums or contributions to participate; and

 • Does not include any employee cost sharing.

WageWorks had prior conversations with the different departments and parties concerning these proposed rules and also submitted comments to the Tri-Agencies in response to these proposed regulations. 

The information contained in this article 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.