Compliance Questions -HSAs and Health FSAs - Eligibility Issues     

August 23, 2012

One of my employees just enrolled in a High Deductible Health Plan ("HDHP") and is now eligible to contribute to a Health Savings Account ("HSA").  A few months ago, his spouse enrolled in a general- purpose Health Flexible Spending Account ("Health FSA").  She enrolled the whole family, including her spouse. If the spouse never submits claims for her husband, is he still eligible to contribute to an HSA?

No.

Individuals who are covered by traditional, general-purpose Health FSA are not eligible for HSA contributions. This rule applies whether the individual is the participant in the Health FSA or simply someone whose expenses can be reimbursed-both are considered "covered." Thus, an employee's spouse will not be eligible for HSA contributions if the spouse's qualified medical expenses can be paid or reimbursed under the general purpose Health FSA in which the employee participates, as provided in Revenue Ruling 2004-45 and IRS Notice 2005-86. Nothing in the guidance limits this principle to spouses, so adult children and other individuals (e.g., domestic partners) who have HDHP coverage-and thus might otherwise be able to make contributions to their own HSAs-will not be eligible to make HSA contributions if they are also covered by a family member's general-purpose Health FSA. 

A family member's eligibility may be preserved if the Health FSA excludes him or her from coverage. But at the present time, it is unusual for a Health FSA to restrict coverage, for example, solely to the covered employee or solely to the covered employee and children (but not the spouse). Most of these arrangements allow benefits for any eligible tax dependent. Plan documents and administrative procedures would need to be redesigned in order to facilitate such an "employee-only" or "employee-plus-children (but not spouse)" coverage option. It is not sufficient for an individual to simply promise not to request reimbursement (even if the promise is kept and no claims are ever submitted).

In general, an individual who is covered by a general-purpose Health FSA will be ineligible for HSA contributions for the individual's entire period of coverage under the Health FSA -even after the individual has completely exhausted his or her Health FSA.

Although an individual generally will not be eligible to contribute to an HSA for the entire period of coverage under a general-purpose Health FSA even if the Health FSA account balance has been exhausted, an individual with a $0 balance at plan year-end under a general-purpose Health FSA with a grace period can disregard that Health FSA coverage and be HSA-eligible during the grace period, as provided in IRS Notice 2007-22. This rule requires that the $0 balance be determined on a cash basis and taking into account the uniform coverage rule. Cash basis means the balance as of the relevant date, without taking into account expenses that have not been reimbursed as of that date. Thus, pending claims, claims submitted, claims received, or claims under review that have not been paid as of a date are not taken into account. 

Written by:

Larry Grudzien

Attorney-At-Law

Larry Grudzien, Attorney at Law | 708 South Kenilworth Ave. | Oak Park | IL | 60304

IRS To Apply Tax Credits to All Health Insurance Exchanges

As stated in an Associated Press article, Republicans grilled the Internal Revenue Service on it's decision to apply tax credits to all exchanges, regardless of whether they are state run or federally run. The law itself is fuzzy in that many interpreted it to say that if the Federal Government ran the exchange, then there would be no tax credits for individuals.

Furthermore, one item which not enough people have realized is that the individual mandate has no teeth. The IRS cannot file criminal charges, seize bank accounts, or garner wages. All they can do is withhold a person's refund. As over 40% of the American population doesn't pay income tax, it really is a moot point.

Here's a link to the original article.

http://news.yahoo.com/republicans-grill-irs-commissioner-health-care-193257220.html

Coordination of Benefits for Medicare Eligible People

You will be turning 65 soon (become Medicare Eligible), but still plan on working for your employer for several more years. Do you need to take Medicare parts A and B? 

The answer is it depends. Below is a snippet from a Humana newsletter that tried to explain how it works (BTW, this is for almost all insurance companies/plans):

Coordinating Medicare and employer health plans isn't a complicated proposition if you know the facts. Active employees cannot be dropped from employer group health plans without violating the federal Age Discrimination Employment Act (ADEA) except in specific circumstances. Medicare secondary payer rules also prohibit employers from reducing health benefits to current employees because of their Medicare eligibility. Plus, the Equal Employment Opportunity Commission issued an informal letter late last year that advised the exemption for coordination with Medicare is only applicable to retirees, not current employees. As older workers delay retirement – or opt to forego retirement altogether, the need for clarity on how to navigate coordination of Medicare and employer-based insurance has become crucial.

Coordination requirements depend on the size of the employer-based healthcare plan.

Under a small group plan, defined as 20 or fewer employees, Medicare becomes the primary health coverage for eligible employees. The employee might not have health insurance if he or she declines Medicare Part B coverage, outpatient, and doctors benefits. Expenses of Part B-eligible employees who become injured and are covered by the group health plan can see the program stop payment – or attempt to recoup payments – creating a nightmarish scenario for employees. An employer who decides to remain the primary payer (an option currently allowed) must receive written confirmation from the employee and the health plan.

In large group plans of 20 or more employees, the amount of coverage employers must provide changes. The employee is not required to opt for Part B but can accept Part B as secondary coverage. When the employee stops working, Part B becomes the primary payer. In the case of a multiple-employer plan, the size of the largest employer dictates whether the group plan size is small or large and therefore, the category of coordination requirements and coverage to which all the employers in the group must adhere.

Additional guidance is available from several sources. National nonprofit consumer service group Medicare Rights Center, along with Cook County, Illinois-based AgeOptions, created a toolkit of educational materials on this subject. The toolkit, "How Medicare Works with Employer-Based Health Insurance: A Guide for Employers, Professionals and Consumers," is designed to help older workers knowledgeably make their way through the transition from employer-based health insurance to Medicare. 

Now in Illinois, if you are enrolled in an HMO plan for an employer with LESS THAN 20 employees, you actually do NOT need to get Part B as an HMO treats payments differently than other plans. That said, please check with your employer/health insurance agent FIRST to confirm that this is still the case in your situation.

Transitional reinsurance program may add 3% - 4% to costs for individual and group health insurance according to United Healthcare

United Healthcare and Anthem Blue Cross Blue Shield both send out information on the transitional reinsurance program which is a part of the Affordable Care Act. According to United Healthcare, this program will increase cost 3% to 4% starting in 2014. The purpose of the reinsurance program is to stabilize the premiums of insurers who take on high cost people (think about your Aunt Edna who is 400 pounds, has high blood pressure, high cholesterol, diabetes, takes 8 medications/day and needs a double knee replacement) in the individual market due to it being guaranteed issue with no pre-existing conditions. This plan will compensate those insurance companies who insure those individuals. The reinsurance program fees will total $12 billion in 2014 and gradually decrease to $5 billion in 2016. States can actually increase these fees at their discretion.

What this means is that the average cost of a health insurance plan will be 3%-4% higher in 2014 due to this reinsurance program alone (fees are ultimately passed on to consumers).

Also starting September 30, 2012 there is a new fee assessed on health insurers (and self insured plans) of $1 per covered life and increasing to $2 per covered life in the second year. This fee helps to fund research on the effectiveness of medical treatments conducted by the new Patient-Centered Outcomes Research Institute (PCORI). The good news is that the most effective treatments will be found and recommended. The bad news is that I wouldn't be surprised if expensive and obscure treatments are "defunded" from health insurance plans (excluded from coverage). That second item is only speculation, but it seems to correlate with many single payer systems around the world.

By the way, if you offer an HRA, even if it is in conjunction with a fully insured plan, it is considered a self-funded plan and you will need to submit those fees to the government. Yes, this means you pay twice.

More updates will be coming.

New HSA Guidelines for 2013

Here are some highlights for 2013.

Annual:	2013	2012
Minimum Individual Deductible	$1,250	$1,200
Minimum Family Deductible	$2,500	$2,400
Maximum Individual Out-of-Pocket (in network)	$6,250	$6,050
Maximum Family Out-of-Pocket (in network)	$12,500	$12,100
Maximum HSA Individual Contribution	$3,250	$3,100
Maximum HSA Family Contribution	$6,450	$6,250

1. Maximum contributions are $3250 for an individual (up $150) and $6450 for a family (up $200). Person’s aged 55 years old and older can add an additional $1000/year as a catch up contribution (no change).
   
   
2. Minimum Deductibles are the same. The minimum deductible for an individual plan is $1,250 and for a family it is $2,500.
   
   
3. Catch up contributions for those 55 years old and older is still $1,000/year.
   
   
4. Maximum out of pocket has changed. The maximum out of pocket (including deductible) on an individual plan is now $6250 (up $200) and for a family it is $12,500 (up $400).

Items that haven’t changed, but are beneficial to know.

• You can put the full amount in immediately without waiting (This even applies to new hires or a person starting an HSA qualified health plan in the middle of a calendar year).
  
  
• You can put the maximum contribution into your HSA account, regardless of your deductible.

• A person can choose to accumulate HSA qualified expenses over the course of years (instead of taking the expenses out of the HSA account at the time of service). Every year they need to fill out a Form 8889 and carry the balances forward. At 65 years old, they can then take a distribution equal to the total amount of expenses incurred tax free.

• An individual can take a one-time distribution from their IRA to fund their HSA account.

• As always, you have until April 15^th (or when you file your taxes) to contribute to your HSA savings account for last year.

Check with your accountant for more information on how this would specifically apply to you.

Here is a link to the original IRS announcement: http://www.irs.gov/pub/irs-drop/rp-12-26.pdf.

Copyright 2012 Robert C Slayton