FSA Archives - 360PEO Inc.

HSA-FSA-HRA: Whats the Difference?

by admin | Apr 28, 2015 | HSA, Tax

HSA-FSA-HRA: Whats the Difference?

HSA-FSA-HRA: Whats the Difference? Health reimbursement arrangements (HRAs), health savings accounts (HSAs) and health care flexible spending accounts (HFSAs) are generally referred to as account-based plans. That is because each participant has their own account, at least for bookkeeping purposes. Under the tax rules, amounts may be contributed to these accounts (with certain restrictions) and used for health care on a tax-favored basis.

The Patient Protection and Affordable Care Act (PPACA) has added new requirements that affect HRAs and HFSAs. Most HFSAs and HRAs will need to be amended to meet the new PPACA requirements. HSAs generally are not affected by PPACA.

The chart below describes the main characteristics of these types of accounts, and should help you decide which is the best option for your particular situation.

	FSA Flexible Savings Accounts	HRA Health Reimbursement Accounts	HSA Health Savings Accounts
Who may legally participate?	Any employee who is also eligible to participate in a group medical plan sponsored by the employer; retired employees are eligible if most participants are active employees.	Any employee who is covered by a group medical plan sponsored by the employer (or if the employer chooses, by the spouse’s employer); retired employees are eligible (a retiree-only plan does not have to meet the medical coverage requirement).	Any employee who is covered by a high deductible health plan (HDHP), not covered by a plan that is not an HDHP, and not covered by any part of Medicare or eligible to be claimed as a tax dependent; individuals who are receiving Medicare may not contribute to an HSA.
May the employer impose additional eligibility requirements?	Yes, the employer may design the plan to cover whom it wishes as long as it meets the non-discrimination requirements.	Yes, the employer may design the plan to cover whom it wishes as long as it meets the non-discrimination requirements.	An employer may not limit the ability of an eligible employee to contribute to an HSA, but the employer may limit its contributions to employees participating in the HSA designated by the employer.
May an employee contribute to the account?	Yes, up to the lesser of $2,500 (indexed to $2,550 for 2015) or the maximum set by the plan (any carryover does not apply toward the $2,500 cap).	No.	Yes, up to the total contribution limit ($3,350 in 2015 for self-only coverage and $6,650 in 2015 for family coverage); individuals aged 55 or greater may contribute an additional $1,000.
May an employer contribute to the account?	Yes, up to two times the employee’s contribution plus $500.	Yes.	Yes, up to the total contribution limit described above.
May another person or entity contribute to the account?	No.	No.	Yes – anyone may contribute to an HSA, up to the total contribution limit.
Does the spouse’s coverage matter?	No.	An employer may – but is not required to — integrate the HRA with coverage through the spouse’s employer.	Yes. If the employee is covered by a non-HDHP through the spouse (which may include an HFSA or an HRA), the employee will not be eligible to contribute to an HSA.
Is a formal account required?	No, a notational/ bookkeeping account is allowed.	No, a notational/ bookkeeping account is allowed.	Yes, a trust or custodial account is required. Generally this is done at a bank or credit union.
Should a Section 125 cafeteria plan be used?	Yes – the HFSA must be part of a Section 125 plan.	No – an HRA may not be part of a Section 125 plan.	An HSA may, but need not be, part of a Section 125 plan. Including in a Section 125 plan will allow the employee to contribute with pre-tax dollars and allow the employer to meet the Section 125 non-discrimination rules instead of the comparable contribution rules.
What health expenses may be reimbursed?	All medical expenses allowed by Code Section 213 (which includes dental and vision expenses), except long term care services, may be reimbursed. Premiums may not be reimbursed.	All medical expenses allowed by Code Section 213 (which includes dental and vision expenses), may be reimbursed. Health premiums may be reimbursed for group coverage if not reimbursing (directly or indirectly) employee’s pre-tax premium. The cost of premiums for individual policies may not be reimbursed.	All medical expenses allowed by Code Section 213, except premiums (unless for COBRA, long-term care insurance or Medicare supplemental, which may be reimbursed).
May non-health expenses be reimbursed?	No.	No.	Yes, but income taxes and a 20% excise tax will apply.
Are limits on reimbursable expenses allowed?	Yes. An employer may exclude specific expenses if it wishes. It also may design the plan to be a “limited purpose” FSA to interface with an HSA option. Limited purpose FSAs typically only reimburse dental, vision and/or preventive care expenses, retiree expenses, or expenses in excess of the IRS high deductible.	Yes. An employer may exclude specific expenses if it wishes. It also may design the plan to be a “limited purpose” HRA to interface with an HSA option. Limited purpose HRAs typically only reimburse dental, vision and/or preventive care expenses, retiree expenses, or expenses in excess of the IRS high deductible.	No.
Whose expenses may be reimbursed?	The employee, spouse, children under age 27 and tax dependents, if the expense was incurred during the coverage period.	The employee, spouse, children under age 27 and tax dependents, if the expense was incurred while coverage is in effect.	The employee, spouse, children under age 27 and tax dependents – even if the person is not eligible to set up their own HSA – if the expense was incurred after the HSA is established.
How are expenses reimbursed?	Employee submits substantiated expense to claims administrator. May be paper or debit card.	Employee submits substantiated expense to claims administrator. May be paper or debit card.	Employee pays expense from HSA. May be paper or debit card. Employee is responsible for maintaining record to substantiate expense.
May expenses be reimbursed after employment terminates?	COBRA may be elected, generally until the end of the plan year in which termination occurred.	COBRA may be elected. Employer may design plan to allow reimbursement after termination, but employee must be given option to decline that extended coverage.	Yes.
May unused contributions be carried over from year to year?	Generally no; however, plan may be designed to allow carryover of up to $500 into next year or a grace period to incur claims attributable to prior year for up to 2-1/2 months.	Yes, if plan allows.	Yes (the account is the individual’s).
May an employee access funds before they have been contributed?	Yes – under the HFSA rules the employee must have access to the full planned contribution for the year on the first day of the coverage period.	Not required, but plan may be written to allow full access at start of year.	Generally no, although in certain situations the employer may advance contributions.
May planned contributions be changed mid-year?	Generally no. An employee may make a mid-year change only if allowed under the Section 125 change in status rules.	Yes (may require plan amendment and participant communications).	Yes – even if employee is contributing to the HSA through a Section 125 plan.
Do non-discrimination rules apply?	Yes, the Section 125 and the Section 105(h) rules apply.	Yes, the Section 105(h) rules apply.	Yes, either the Section 125 or the comparability rules apply.
May an employee participate in multiple accounts?	May participate in an HSA if HFSA is limited purpose; pays after HRA unless plan provides differently.	May participate in an HSA if HFSA is limited purpose; pays before HFSA unless plan provides differently.	Could also participate in a limited purpose HFSA or HRA.
Are a plan document and SPD required?	Yes (unless a government or church plan).	Yes (unless a government or church plan).	Not for HSA; will need for related HDHP.
Is a 5500 required?	If 100+ participants in the HFSA unless a government or church plan.	If 100+ participants in the HFSA unless a government or church plan.	No.
Is W-2 reporting required?	No, provided the HFSA is an “excepted benefit.”	No (reporting is currently optional).	Employer contributions are reported in Box 12 with code W; do not include in “cost of coverage” reporting under code DD.
Does the PCORI fee apply?	Not if an excepted benefit (if owed, fee is only due on employees, not dependents).	Yes, if HRA is the only self-funded plan using that plan year (fee is only due on employees, not dependents).	No.
Does the health insurance provider fee apply?	No.	No.	No.
Does the TRF apply?	No.	No.	No.
Do contributions apply to Cadillac tax?	Yes (both employer and employee).	Yes.	Yes (employer; probably employee if made through a Section 125 plan).
Do contributions apply toward minimum value determinations?	No.	Yes, if may only be used for cost-sharing (deductible, coinsurance, copays).	Yes.
Do employer contributions apply to affordability determinations?	No.	Yes, if may be used for premiums and/or cost-sharing.	No.
Qualifies as “minimum essential coverage”?	No.	Yes (if provides any medical benefits).	No.
Do HIPAA privacy requirements apply?	Yes.	Yes.	Not to HSA; may apply to related HDHP.
Is a Medicare Part D notice required?	No.	Yes, unless integrated with the Rx coverage.	Not for HSA; will need for related HDHP.

To qualify as an excepted benefit, an HFSA must be offered in conjunction with a group medical plan and the employer’s contribution cannot exceed two times the employee’s pre-tax contribution to the HFSA plus $500.
Beginning in 2014, HRAs must be available only to individuals actually covered by the group medical plan (or the spouse’s group medical plan if the plan provides). Participants must be given the option to decline further HRA reimbursement annually and when their employment terminates.

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4/15/15

This information is general and is provided for educational purposes only and is subject to change. It is not intended to provide legal advice.
You should not act on this information without consulting legal counsel or other knowledgeable advisors.

New FSA $500 Carry Over

by admin | Nov 1, 2013 | Health Care Reform, Health Care Refrom, HSA, Tax

The New FSA Carry Over. U.S. loosens FSA rules and will allow a carry over of up to $500 to the next year. The use-it-or-lose-it rule scared off many workers, with just 25 percent of eligible workers participating in healthcare FSAs.

According to a WSJ article “Consumers Can Roll Over $500 in an FSA”, about 14 million families use FSA accounts and the new plan would be a welcome relief for them. That’s because until now any unused funds used to go the employer, so people were forced to use up the funds, especially toward the end of the year by spending on frivolous things. Moreover, many were fearful of signing up, lest they lose any unused amount.

The most recent prior change to FSA this year was a limit of $2,500 that a worker can set aside.

What is a Health FSA?

The health care Flexible Savings Account (FSA) can reimburse you or help you pay for eligible health care expenses not covered by your health plan. The portion of your paycheck you put into your FSA is taken out before you pay federal income taxes, Social Security taxes and most state taxes. It’s a great way to save money.

Example FSA Savings

	Without FSA	With FSA	Savings
Family co-payments	$80	$48	$32
Contact lenses and solution	$400	$240	$160
Over-the-counter items	$300	$180	$120
Braces and dental co-insurance	$2,520	$1,512	$1,008
Yearly Total:	$3,300	$1,980	$1,320

Tax Savings

Generally, contributions you make to your FSA are not subject to federal income taxes or social security taxes. In most instances, there are no state taxes taken out either. The amount you may save depends upon:

The amount you put into your FSA
The tax percentage you would normally pay on that money (tax bracket)

Let’s say you want $2,000 taken out of your paycheck this year to put into your FSA. The money you direct to your FSA is taken out of your check before taxes are taken out. That reduces your taxable income by $2,000.

Let’s say you normally pay 30 percent in federal, social security and state taxes on your income. In this example, you would enjoy a tax savings of 30 percent of the $2,000. In other words, you could get a $600 tax savings on the $2,000 you directed to your FSA.

This example should not be taken as tax advice. See a tax advisor to seek the best advice for your situation. To see how much you may save, check out Aetna’s FSA Savings Calculator.

RESOURCES:

FSA FAQ

Qualified Expenses

Aetna FSA Savings Calculator.

HRA Calculator

Is your FSA compliant? Which pre-tax qualified HSA, FSA, HRA spending card is right is right for you ? Please contact our team at Millennium Medical Solutions Corp (855)667-4621 for immediate answers.. Stay tuned for updates as more information gets released. Sign up for latest news updates.

President’s Health Reform Proposal Issued

by admin | Feb 23, 2010 | Health Care Reform, healthcare, Pharmaceutical Industry

The President yesterday released with great anticipation his own version of the Reform Health Bill. This is the opening bid before Thursday’s Bipartisan Summit.

The proposed Bill for the most part is similar to the Senate Bill passed in December with a few minor changes anticipated to cost almost $1 trillion over 10 years. The comprehensive bill adds cost saving measures and more affordability for lower income Americans.

As expected and in step with both Houses the proposal eliminates pre-existing condition but raises the penalty for individuals not paying into a mandatory health plan to 2.5% of adjusted gross income by 2016. Included, also, is an increase in the tax credits for health insurance premiums a sort of carrot and the stick model.

Spurred by recent rate increases by insurers such as Anthem’s 39% planned rate hike in California there is a provision to establish a new Health Insurance Rate Authority to give guidance and oversight to states and monitor insurance market behavior. “If a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.”

Also included is elimination of Nebraska’s politically wrangled special deal to help pay for a proposed Medicaid expansion, and would instead provide more help for all states to pay for their new Medicaid enrollees. It would delay enactment of a the Cadillac tax (40% tax in excess of $10,200/$27,500 for single/ families) on high-cost employer-sponsored insurance plans with no special exceptions to Union groups.

There is elimination of the Medicare Rx “doughnut hole” for Part D. There will be a 25% coinsurance fee instead for seniors in this gap. Currently, the gap starts after the first covered $2830 and continues on the next $4550 with only a 5% member responsibility thereafter.

Our small employer groups will be relieved to know that groups under 50 employees are exempt form the mandate. Under the Senate plan, employers with more than 50 employees that do not offer coverage would pay a $750 assessment for each full-time employee. The White House proposal would bump up that assessment to $2,000 for each full-time employee. However, in determining the assessment, an employer’s first 30 employees would be excluded from the calculation. Taking the case of an employer with 100 employees that did not offer coverage, for example, its assessment would be 70 times $2,000.

The proposal also is believed to retain a provision in the House and Senate bills that would impose a $2,500 annual cap, starting in 2011, on the maximum annual contributions that could be made to health care flexible spending accounts such as HRA and FSA.

Our position is that Health Care Reform done responsibly is important and inevitable for the sustainability of our country. While the current leaves millions uninsured it just as importantly leaves many who are already insured struggling to pay and possibly drop out going forward. Addressing the cost factors for those already insured is being understated.

Stay tuned till the end of the week for the Bipartisan Summit. We expect to see proposals on creating tax credits for employers who already offer benefits. Also allowing insurers to easily cross state lines and increase competition by creating a basic Federal health package. This will allow strong reputable companies like Humana to enter the NY/NJ/CT market and side step the choke full of mandates. NY already includes almost 20% of overall costs going to these add-ons.