Employers are looking for relief from skyrocketing health costs. Some employers have turned to consumer-directed health plans (CDHPs) in hopes of lowering costs, opening their employees’ eyes to true health care expenses, or making their employees better health care consumers. By combining different types of flex plans, employers can offer their work force the best value while maintaining health care coverage.
Although combination plans can offer a solution, they can also cause some confusion. Employers and employees grapple with ever-changing benefit plans, while flex plan service providers struggle with the growing issues of compliance and CDHP administration. Adding to the confusion, government agencies have issued a plethora of rulings and notices that add complexity to benefits administration.
In my April 2011 column I talked about coordinating health savings accounts (HSAs) with health flexible spending accounts (HFSAs) and health reimbursement arrangements (HRAs). The mix and match approach of combining all these types of plans may look great on paper but can result in administrative nightmares if you’re not careful. The more complicated designs can even result in a CDHP’s failure. This article is a follow-up to make sense of the administrative issues that come along with administering CDHPs—providing sweet dreams instead of nightmares for your consumer-directed health plans.
Educate Employers and
Employees Carefully
When adding benefits to an employers’ benefit packages, review all the benefits involved—both old and new. Since the IRS doesn’t limit the amount of medical expenses for which a participant may be reimbursed from a CDHP, employers sometimes try to include too many different types of plans into their benefits package.
Determine the employer’s goals and objectives. If the only goal is to save money, you might ask them to rethink their plan. CDHP designs will not always save the employer money, especially during the plan’s first year. Stay away from dollars and cents and focus instead on employee awareness of benefits, health care costs and health care alternatives—all benefits of CDHPs.
Employee education starts with a plan design that can be easily explained in a graph, chart or list. Choices must be clearly explained. Nothing will sour a plan more than employee dissatisfaction—even if it’s based on misunderstanding or failure to read the fine print. Setting the ground rules and fully educating employees is the first step toward a successful plan.
Anticipate and answer participant questions before they’re asked. Why would I want to elect the limited HFSA or HRA if I have an HSA? The answer: (1) to save HSA account funds for a catastrophic event; (2) because an employee may not be able to fully fund an HSA to the maximum deductible of his health insurance plan; (3) HSA plans grow tax free; (4) there is a 25 to 40 percent savings if vision and dental fees go through a limited HFSA or HRA.
Would it be better for me to take the HDHP and a regular HFSA? It might be, so don’t confuse the issues. Employees who choose HDHP coverage do not lose their right to participate in a regular HFSA, and the funds are immediately available to them. They should elect a limited HFSA or limited HRA only if they intend to contribute to an HSA.
Contributions
Contributions for HFSAs are chiefly payroll deductions and retained by an employer in its general assets. This makes for uniformity of payroll administration with each pay period being the same for the entire plan year. Changes occur when participants have a qualified change in status, new employees come onboard, or employees terminate throughout the year.
HRAs don’t necessarily have any type of account that funds are fed into. Rather, the money needs to be available as claims are turned in for reimbursement, which can be an issue. Some HRA plans allow the entire plan limit to be used at the beginning of the plan year, while others make dollars available to correspond with a schedule, based on employee payroll or monthly and quarterly credited funds.
Determine when reimbursement resources are available for any particular benefit and ensure that there are funds to pay claims at the times demanded by the various plans.
Participants can fund their HSA at the beginning of the taxable year, prior to filing their income tax return, or periodically throughout the year. Remember that the plan document needs to allow HSA contributions to flow through the cafeteria plan. In this manner, both the employer and their employees enjoy the highest tax savings afforded to HSA contributions. There are also advantages for employer contributions to an HSA made in this manner.
Claims
Claims processing is the most time-consuming and often the most onerous step in flex plan administration. Determining if an expense is eligible and coding it to properly pay from the various benefits takes plenty of education and training. Many expenses take on a different character when compared to eligible expenses allowed through each individual benefit.
For instance, one could easily determine that a doctor’s office visit would be paid out of an HSA, yet what if the office visit goes toward the deductible for a health care plan? If that is the case, this same expense may be counted toward the post-deductible HFSA or HRA limit and not paid to the participant. And if an HDHP is combined with an HRA bridge plan, the expense must be characterized as a deductible item.
Let’s say the employer has an HRA bridge plan, which pays for deductible items only, and is combined with an HDHP. Only the insurance carrier knows what expenses go toward the deductible, so only an explanation of benefits (EOB) submitted by the participant will tell the whole story on this expense, allowing it to be submitted and reimbursed properly as a claim.
A flex plan administrator can get a download from the contracted insurance carrier, but data exchange can be misleading. Make sure electronic information from the carrier contains the right information. If a data file includes all the items the insurance company denies, a file may contain items that are not eligible medical expenses or that were rejected because they were duplicates. Be very specific about the information in the file.
Reimbursing preventive care from a limited HFSA or HRA can also be problematic. Unless the plan document is very specific, the administrator may not be able to determine the broadest definition of preventive care. It can range from tests and diagnostic procedures to tobacco cessation programs, weight-loss programs, plus a glut of safe harbor preventive care screening services. The definition may even be expanded to include certain drugs or other therapies. And, once an issue is found during a preventive service (isn’t that the point?), the item becomes treatment and not a preventive expense.
No one wants their participants to become health care experts. So keep it simple. Reimburse only vision and dental expenses from a limited HFSA or HRA. Both the employee and the claims processor will be on the same page.
Disbursements—Determining
the Available Balances
Employers must keep the administrator apprised of new employees, any qualified changes in status, and terminations. Adding interest and deducting fees or cash withdrawals is sometimes handled by a custodian. Debit card swipes must be taken into account before disbursing funds for manually input claims or downloads from other health care administrators. Benefits can be paid based on either an annual limit or just on funds available to date. A software system should be making some of these decisions, but it is only as good as its initial setup and data maintenance throughout the year.
Plan Documents
Combining plans may mean updating existing plan documents. When adding an HSA option, the HFSA document should allow for at least a limited HFSA. And don’t forget about running the HSA contributions through the employer’s cafeteria plan. Making such a provision in a cafeteria plan document amounts to more savings for both the employees and employer.
Also check out the HRA plan document to determine if an additional limited, suspended or retirement HRA is in order.
Software and Technology
A software system should allow for more than one type of HFSA and more than one type of HRA per employer; identify the types of expenses allowed through each type of plan (e.g., the regular HFSA would include all eligible 213(d) expenses as outlined in the plan document, but the limited HFSA or HRA would only accept expenses incurred for vision or dental expenses or those incurred once the minimum statutory HDHP deductible is met); make reimbursements from various plans in the correct order; and issue concise reports to employers and employees fully explaining each account balance.
Questions to consider when evaluating new technological approaches: Can the administrator accept downloads from the insurance carrier for payments directly to the service provider? How about smart phone apps and communications? Many emerging smart phone apps allow a participant to take a picture of the receipt and send it to the plan administrator. The use of debit cards, social networking and technology engages participants and relieves their administrative burdens.
Breakdowns in communication to employees, expectations that can never be met, and administrative snafus can wreck a plan before it’s ever had a chance to begin. To maximize performance of a combination approach, you’ll need to step through administrative issues that pop up at various stages of setting up and administering consumer-driven health plans.
Other considerations would include employee demographics and how the HIPAA, COBRA and ERISA laws affect each part of a combined plan design. Sometimes simpler is better. Choose a combination that is easy to administer and, more importantly, easy to communicate to employees.
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.
