5 critical elements to consider when choosing an HSA administrator

The Employee Benefit Research Institute recently reported that 83 percent of today’s workforce said health insurance was very or extremely important in deciding whether they would change jobs or not. Read on to learn more.


If anyone needed any reminding, health insurance is still an urgent matter to today’s employees. According to Employee Benefit Research Institute’s 2017 Health and Workplace Benefits Survey, 83% of the workforce said that health insurance was very or extremely important in deciding whether to stay in or change jobs. Yet research has uncovered that employees tend to delay or disengage from retirement and healthcare decisions, which they view as difficult and complex.

Fortunately, with consumer-driven healthcare plans and health savings accounts on the rise, benefits managers have a real opportunity to turn this frustrating situation into a positive one for their workforce. A critical step in doing so is choosing the right health savings administrator.

Employers should consider the following five elements when choosing a health savings administrator, or for evaluating the one with which you’re currently working.

1. Minimize risk by ensuring business alignment. Look for a health savings administrator that aligns with your company’s mission and business goals. Lack of business alignment can create real risks to your organization and employees and can damage your company brand and employee experience. For example, if your account administrator nickels-and-dimes you and your employees with added fees, you’ll experience higher costs and reduced employee satisfaction.

2. Service, support are key to employee satisfaction. It’s a fact: Employees will have HSA-related questions — probably a lot of them. Their questions may range from pharmacy networks and claims to the details of IRS rules. That’s why account management and customer service support from your health savings administrator are vital. Having first-class customer service means that employees will be better educated on their savings accounts, which can result in HSA adoption and use to their fullest potential.

3. Education, communication drive adoption. Educating employees about health savings accounts using various methods is critical, especially in the first year of adoption. This ensures your employees understand the true benefits and how to maximize their account. As CDHPs require more “skin in the game,” consumers show a higher likelihood to investigate costs, look for care alternatives, use virtual care options, and negotiate payments with providers. These are all positive outcomes of HSA adoption, and an HSA administrator oftentimes can offer shopping, price and quality transparency tools to enable your employees to make these healthcare decisions.

4. Understand the HSA admin’s technology. Because most spending and savings account transactions are conducted electronically, it’s critical that your administrator’s technology platform be configured to deliver a positive user experience that aligns with your expectations. It should allow for flexibility to add or adjust offerings and enable personalization and differentiation appropriate for your brand.

Be aware that some vendors have separate technology platforms, each running separate products (i.e., HSAs versus FSAs) and only integrate through simple programming interfaces. Because the accounts are not truly integrated, consumers may need to play a bigger role in choosing which accounts their dollars come from and how they’re paid, leading to consumer frustration and an increase in customer service call volume. With a fully integrated platform, claims flow seamlessly between accounts over multiple plan years, products and payment rules.

5. Evaluate your financial investment. Transparent pricing and fees from your health savings administrator is important. Administrators can provide value in a variety of ways including tiered product offerings, no traditional banking fees or hidden costs, and dedicated customer service. It’s important to know what these costs are up front.

Evaluate your financial investment by knowing whether or not your health savings administrator charges for program upgrades, multiple debit cards, unique data integration requirements, ad-hoc reports and more. These fees can add up and result in a final investment for which your company didn’t plan. And, it’s best to know in advance if your account holders will be charged any additional fees. Not communicating these potential fees at adoption can lead to dissatisfaction, which can then hurt your employee satisfaction ratings and complete adoption of the savings account products.

Choosing a health savings administer is a critical decision that affects not only employee satisfaction but the entire company. With eight in 10 employees ranking their benefits satisfaction as extremely or very important in terms of job satisfaction, according to EBRI, taking the time to fully vet your health savings administrator will pay dividends.

SOURCE: Santino, S. (5 November 2018) "5 critical elements to consider when choosing an HSA administrator" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/what-to-consider-when-choosing-an-hsa-administrator


8 ways to maintain HSA eligibility

Is your high-deductible health plan still HSA qualified? Ensuring your high-deductible health plan remains HSA qualified is no easy task. Read this blog post for eight ways employers can maintain HSA eligibility.


For employers sponsoring high-deductible health plans with health savings accounts, ensuring that the HDHP continuously remains HSA qualified is no easy task. One challenge in this arena is that most of the rules and regulations are tax-related, and most benefit professionals are not tax professionals.

To help, we’ve created a 2019 pre-flight checklist for employers.

With 2019 rapidly approaching and open enrollment season beginning for many employers, now’s a great time to double-check that your HDHP remains qualified. Here are eight ways employers can maintain HSA eligibility.

1. Ensure in-network plan deductibles meet the 2019 minimum threshold of $1,350 single/$2,700 family.

To take the bumps out of this road, evaluate raising the deductibles comfortably above the thresholds. That way, you won’t have to spend time and resources amending the plan and communicating changes to employees each year that the threshold increases. Naturally, plan participants may not be thrilled with a deductible increase; however, if your current design requires coinsurance after the deductible, it’s likely possible on a cost neutral basis to eliminate this coinsurance, raise the deductible and maintain the current out-of-pocket maximum. For example:

Current Proposed
Deductible $1,350 single / $2,700 family $2,000 single / $4,000 family
Coinsurance, after deductible 80% 100%
Out-of-pocket maximum $2,500 single / $5,000 family $2,500 single / $5,000 family

This technique raises the deductible, improves the coinsurance and does not change the employee’s maximum out-of-pocket risk. The resulting new design may also prove easier to explain to employees.

2. Ensure out-of-pocket maximums do not exceed the maximum 2019 thresholds of $6,750 single/$13,500 family.

Remember that the 2019 HDHP out-of-pocket limits, confusingly, are lower than the Affordable Care Act 2019 limits of $7,900 single and $15,800 family. (Note to the U.S. Congress: Can we please consider merging these limits?) Also, remember that out-of-pocket costs do not include premiums.

3. If your plan’s family deductible includes an embedded individual deductible, ensure that each individual in the family must meet the HDHP statutory minimum family deductible ($2,700 for 2019).

Arguably, the easiest way to do so is making the family deductible at least $5,400, with the embedded individual deductible being $5,400 ÷ 2 = $2,700. However, you’ll then have to raise this amount each time the IRS raises the floor, which is quite the hidden annual bear trap. Thus, as in No. 1, if you’re committed to offering embedded deductibles, consider pushing the deductibles well above the thresholds to give yourself some breathing room (e.g., $3,500 individual and $7,000 family).

For the creative, note that the individual embedded deductible within the family deductible does not necessarily have to be the same amount as the deductible for single coverage. But, whether or not your insurer or TPA can administer that out-of-the-box design is another question. Also, beware of plan designs with an embedded single deductible but not a family umbrella deductible; these designs can cause a family to exceed the out-of-pocket limits outlined in No. 2.

Perhaps the easiest strategy is doing away with embedded deductibles altogether and clearly communicating this change to plan participants.

4. Ensure that all non-preventive services and procedures, as defined by the federal government, are subject to the deductible.

Of note, certain states, including Maryland, Illinois and Oregon, passed laws mandating certain non-preventive services be covered at 100%. While some of these states have reversed course, the situation remains complicated. If your health plan is subject to these state laws, consult with your benefits consultant, attorney and tax adviser on recommended next steps.

Similarly, note that non-preventive telemedicine medical services must naturally be subject to the deductible. Do you offer any employer-sponsored standalone telemedicine products? Are there any telemedicine products bundled under any 100% employee-paid products (aka voluntary)? These arrangements can prove problematic on several fronts, including HSA eligibility, ERISA and ACA compliance.

Specific to HSA eligibility, charging a small copay for the services makes it hard to argue that this isn’t a significant benefit in the nature of medical care. While a solution is to charge HSA participants the fair market value for standalone telemedicine services, which should allow for continued HSA eligibility, this strategy may still leave the door open for ACA and ERISA compliance challenges. Thus, consider eliminating these arrangements or finding a way to compliantly bundle the programs under your health plan. However, as we discussed in the following case study, doing so can prove difficult or even impossible, even when the telemedicine vendor is your TPA’s “partner vendor.”

Finally, if your firm offers an on-site clinic, you’re likely well aware that non-preventive care within the clinic must generally be subject to the deductible.

5. Depending on the underlying plan design, certain supplemental medical products (e.g., critical illness, hospital indemnity) are considered “other medical coverage.” Thus, depending on the design, enrollment in these products can disqualify HSA eligibility.

Do you offer these types of products? If so, review the underlying plan design: Do the benefits vary by underlying medical procedure? If yes, that’s likely a clue that the products are not true indemnity plans and could be HSA disqualifying. Ask your tax advisor if your offered plans are HSA qualified. Of note, while your insurer might offer an opinion on this status, insurers are naturally not usually willing to stand behind these opinions as tax advice.

6. The healthcare flexible spending account 2 ½-month grace period and $500 rollover provisions — just say no.

If your firm sponsors non-HDHPs (such as an HMO, EPO or PPO), you may be inclined to continue offering enrollees in these plans the opportunity to enroll in healthcare flexible spending accounts. If so, it’s tempting to structure the FSA to feature the special two-and-a-half month grace period or the $500 rollover provision. However, doing so makes it challenging for an individual, for example, enrolled in a PPO and FSA in one plan year to move to the HDHP in the next plan year and become HSA eligible on day one of the new plan year. Check with your benefits consultant and tax adviser on the reasons why.

Short of eliminating the healthcare FSA benefit entirely, consider prospectively amending your FSA plan document to eliminate these provisions. This amendment will, essentially, give current enrollees more than 12 months’ notice of the change. While you’re at it, if you still offer a limited FSA program, consider if this offering still makes sense. For most individuals, the usefulness of a limited FSA ebbed greatly back in 2007. That’s when the IRS, via Congressional action, began allowing individuals to contribute to the HSA statutory maximum, even if the individual’s underlying in-network deductible was less.

7. TRICARE

TRICARE provides civilian health benefits for U.S Armed Forces military personnel, military retirees and their dependents, including some members of the Reserve component. Especially if you employ veterans in large numbers, you should become familiar with TRICARE, as it will pay benefits to enrollees before the HDHP deductible is met, thereby disqualifying the HSA.

8. Beware the incentive.

Employers can receive various incentives, such as wellness or marketplace cost-sharing reductions, which could change the benefits provided and the terms of an HDHP. These types of incentives may allow for the payment of medical care before the minimum deductible is met or lower the amount of that deductible below the statutory minimums, either of which would disqualify the plan.

SOURCE: Pace, Z.; Smith, B. (22 October 2018) "8 ways to maintain HSA eligibility" (Web Blog Post). Retrieved from https://www.employeebenefitadviser.com/opinion/8-ways-to-maintain-hsa-eligibility


What's the best combination of spending/saving with an HSA?

Health savings accounts (HSAs) are changing the way many people are planning for retirement. Do you know much about HSAs and what they can offer? Continue reading to learn more about them.


The old adage, “You need to spend money to make money,” is applicable to many areas of life and business, but when it comes to retirement, not so much. Particularly for people who are enrolled in retirement accounts, like the 401(k) or IRA.

After all, the more you’re able to fund these accounts on a yearly basis, the sooner you’ll be able to accrue enough money to retire to that beach condo or cabin in the backcountry.  But in recent years, a newcomer has entered the retirement planning picture offering a novel new way to save money: By spending it.

The health savings account (HSA) has the potential to influence the spending/saving conundrum many young professionals face: Do I spend my HSA money on qualifying health care expenses (which can save me up to 40 percent on the dollar) or do I pay out of pocket for the same expenses and watch my HSA balance grow?

What many people don’t realize is that yearly HSA contributions are tax-deductible. So if account holders aren’t factoring in doctor co-payments, prescription drugs and the thousands of over-the-counter health products that tax-advantaged HSA funds can cover, they may be missing an opportunity to save in taxes each year.

By maximizing their contributions and paying with HSA funds as opposed to out-of-pocket, HSA users can cover products they were going to purchase anyway with tax-free funds, while using whatever is rolled over to save for retirement.

Spending more to save more. Who knew?

Here’s some food for thought that savvy employers should consider sharing with employees of all ages.

Facts about health savings accounts (HSAs)

HSAs were created in 2003, but unlike flexible spending accounts (FSAs) that work on a year-to-year basis, HSAs have no deadlines and funds roll over annually. HSAs also feature a “triple tax benefit,” in that HSA contributions reduce your taxable income, interest earned on the HSA balance accrues tax free, and withdrawals for qualifying health expenses are not taxed.

Account holders can set aside up to $3,500 (2019 individual health plan enrollment limit) annually and $7,000 if participating in the health plan as two-person or family, and these funds can cover a huge range of qualifying medical products and services.

HSAs can only be funded if the account holder is enrolled in an HSA-qualified high-deductible health plan (HDHP). If the account holder loses coverage, he/she can still use the money in the HSA to cover qualifying health care expenses, but will be unable to deposit more funds until HDHP coverage resumes. The IRS defines an HSA-qualified HDHP as any plan with a deductible of at least $1,350 for an individual or $2,700 for a family (in 2019 – limits are adjusted each year).

Despite their relatively short lifespan, HSAs are among the fastest growing tax-advantaged accounts in the United States today. In 2017, HSAs hit 22 million accounts for the first time, but a massive growth in HSA investment assets is the real story. HSA investment assets grew to an estimated $8.3 billion at the end of December, up 53 percent year-over-year (2017 Year-End Devenir HSA Research Report).

However, while HSAs offer immediate tax benefits, they also have a key differentiator: the ability to save for retirement. HSA funds roll over from year to year, giving account holders the option to pay for expenses out of pocket while they are employed and save their HSA for retirement.

If account holders use their HSA funds for non-qualified expenses, they will face a 20% tax penalty. However, once they are Medicare-eligible at age 65, that tax penalty disappears and HSA funds can be withdrawn for any expense and  will only be taxed as income. Additionally, once employees  turn 55, they  can contribute an extra $1,000 per year to their HSAs, a “catch-up contribution,” to bolster their HSA nest eggs before retirement. When all is said and done, diligently funding an HSA can provide a major boost to employees’ financial bottom lines in retirement.

What’s the best HSA strategy by income level?

HSAs have immediate tax-saving benefits and long-term retirement potential, but they require different savings strategies based on your income level.

Ideally, if you have the financial means to do so, putting aside the HSA maximum each year may allow you to cover health expenses as they come up and continue saving for retirement down the road. But even if you’re depositing far below the yearly contribution limit, your HSA can provide a boost to your financial wellness now and in the future.

I’ve seen this firsthand. Before we launched our e-commerce store for all HSA-eligible medical products, we extensively researched the profiles of the primary HSA user groups through partnerships with HSA plan providers.

We then created “personas” that provide insights on how to communicate with different audiences about HSA management at varying points in the account holder’s life cycle, and these same lessons can be just as vital to employers.

The following contribution strategies are based on these personas and offer insights that could help employees get their HSA nest egg off and growing. These suggestions offer a means of getting started.

As employees receive pay raises and promotions, they may be able to increase their HSA contributions over time, but this can be a way to get their health care savings off the ground and then adjust to life with an HSA.

Disclaimer: These personas are for illustrative purposes only and in all cases you may want to speak with a tax or financial advisor. Information provided should not be considered tax or legal advice.

1. Employee Type: Millennials/Gen-Z with an income between $35-75k/year

For the vast majority of young professionals starting out, health care is not at the top of their budget priorities. However, high-deductible health plans have low monthly premiums, and by contributing to an HSA, an account holder can cover these expenses until the deductible is exhausted. For this group of employees, starting off small and gradually increasing contributions as income increases is a sound financial solution.

Potential Contribution Range: $1,000-$1,500

2. Employee Type: Full-Time HDHP Users Enrolled with an income between $35-60k/year

With many companies switching to all HDHP health plan options, a large contingent of workers find themselves using HDHPs for the first time. For this group, it’s all about finding the right balance between tax savings and the ability to cover necessary health expenses. Setting aside money in an HSA will allow workers to reduce how much they pay in taxes yearly by reducing their taxable income, while being able to pay down their deductible with HSA funds at the same time.

Potential Contribution Range: $1,000-$1,500

3. Employee Type: Staff with Families with an income between $75-100k/year

Low premiums from an HDHP plan are attractive for these employees, but parents will have far more health expenses to cover and more opportunities to utilize tax-free funds to cover health and wellness products. With more opportunities to spend down their deductible with qualifying health expenses and the resulting tax savings, parents should strive to put the family maximum contribution ($7000 for 2019) into their HSAs.

Potential Contribution Range:$4,000-$6,900

4. Employee Type: Pre-Retirement Staff with an income between $100-200k/year

Employees who are in their peak earning years have the greatest opportunity to put away thousands in tax-free funds through an HSA. So whenever possible, they should be encouraged to contribute the largest possible allocation to their HSA on a yearly basis. Additionally, employees age 55 and over can contribute an extra $1,000 to their HSA annually until they reach Medicare age at 65 to fast-track their HSA earnings.

Potential Contribution Range: HSA Maximum ($3,500 individual, $7,000 families for 2019)

What else should employers know about HSAs?

Employers can help employees get the most out of HSAs. Here are some tips:

  • Employers should consider contributing to their employees’ accounts on an annual basis. Employer contributions to an HSA are tax-deductible, and this has the added bonus for employees of making it easier to max out their contributions annually.
  • Remember: Employer and employee contributions cannot exceed the yearly HSA contribution limits ($3,500 individual, $7,000 family for 2019), so make this information clear to employees during open enrollment.
  • If employees are still on the fence about HSAs, remind them that deductible expenses can be paid for with HSA funds, and yearly HSA contributions are tax-deductible for employees as well.

SOURCE:
Miller, J (2 July 2018) "What's the best combination of spending/saving with an HSA?" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/06/08/whats-the-best-combination-of-spendingsaving-with/


3 ideas to ease the transition to a high-deductible world

With high-deductible health plans rising, employers may not be thinking about the drastic changes happening in the future. Here are some tips to make a transition into a high deductible industry painless.


We’re all familiar with the necessary evils of today’s society: paying taxes, going to the dentist and sitting in rush-hour traffic. Now, there’s another one to add to the list — high deductible health plans (HDHPs). They’re on the rise due to increasingly unmanageable health care costs caused by factors such as increased carrier and hospital consolidation, unregulated pharmaceutical prices, and a lack of financial awareness among medical providers.

In response, prudent employers who want to continue providing health benefits but can’t keep up with the costs are turning to HDHPs to share the financial burden with employees and encouraging those employees to become more disciplined shoppers. This is predictably being met with resistance.

But there’s a more urgent matter at hand: until we find a way to flip the health-care system on its head, we’re anticipating a future where networks get narrower and significantly limit options and deductibles rise to catastrophic heights.

Employers may not be thinking ahead for these drastic changes, which is why brokers can be instrumental in helping clients guide their employees toward the necessary mental and financial preparations. Here are a few ideas to get them started.

1. Shift gears to plan beyond the calendar year.

For most, health care is an infrequent experience that’s handled reactively: you get sick, you go to the doctor, your insurance foots the bill. However, now that employees are on the hook for potentially thousands of dollars, it’s crucial that they plan ahead.

To facilitate this shift in mindset, employers should encourage employees to:

  • Utilize a health savings account (HSA):When it comes to HSAs, people tend to fall into one of two schools of thought: “HSAs are a silver bullet” or “HSAs are a terrible excuse by politicians to allow the existence of HDHPs.” Rarely is a situation so black and white, and this one is no exception. HSAs aren’t the best choice for everyone. Certain demographics can’t afford to juggle the high costs of health care (and life) while also contributing funds to an account. However, it’s important to keep in mind that as costs continue to rise, more people will be pushed above the HSA qualification line and having an account may be the only life raft available when drowning in high deductibles — a trend we’re already starting to see.In an ideal world, the HSA wouldn’t exist. Out-of-control health care costs bear the blame for solutions like HDHPs — and the HSA is our consolation prize. The reason I advocate the utilization of these accounts for long-term planning is because they are the only health care benefit we have that encourages people to think beyond 12 months. Unlike the flexible spending account (FSA), the money in an HSA rolls over every year and grows over time, so it lets people save for years down the road (maybe when the pediatrician bills pile up, or you finally have that major surgery) vs. scrambling to spend their funds before the end of the year. Also, if an employer is contributing to an employee’s HSA, it’s leaving money on the table not to sign up for an account.
  • Shop for the best “deals”:Unless someone is a frequent flyer in the health care system, they might brush off shopping for healthcare since it seems like a lot of effort for a single doctor’s visit. However, considering the fact that the cost of an ACL surgery can vary as much as $17,000, those numbers certainly add up over time. (Even more so if a patient fails to find care that’s in network.) Helping employees understand this concept, and pairing it with an easy-to-use transparency solution, can save them tons of money in the long run — especially if the cost savings from each doctor’s visit are deposited into an HSA for future use.

2. Recognize that options are still available.

I’m not going to try to frame high deductibles in a positive light. It’s not the ideal situation for consumers or employers. But sometimes, just knowing there are options in a seemingly bleak situation can provide temporary relief. Here are some tips for employers to share with employees when they’re frustrated about their HDHPs:

  • Ask questions:Employees shouldn’t be afraid to ask questions. Healthcare is known for being convoluted, so it’s likely they’re not alone in any confusion they experience. They should start with health insurance and take time with the HR manager to understand the specifics of their coinsurance, copays, deductibles, and benefits so they’re aware of all their options, such as free preventive services. Another great place for questions is at the doctor’s office. Asking about and negotiating costs (yes, you can do that!) can have huge payoffs — Consumer Reports found that only 31 percent of Americans haggle with doctors over medical bills but that 93 percent of those who did were successful, with more than a third of those saving more than $100.
  • Stay educated:“Education” can be a tired term for brokers and employers. Employees never seem to read the emails and collateral materials that teams painstakingly curate each year. While disheartening, I think the focus on education is a long but ultimately rewarding process. Consider the 401(k). These plans struggled through the recessions in the early 2000s, but through constant behavioral reinforcement (helped largely by policies such as The Pension Protection Act, which made it easier for companies to automatically enroll their employees in 401(k) plans) and continued efforts by employers, 401(K)s bounced back and hold $4.8 trillion in assets today.The same lesson can be applied to your education efforts as well. That is, eventually the education will stick. So help create a new ecosystem for employees to navigate by getting timely information and resources out there about maximizing HDHPs and utilizing HSAs.

3. Stay optimistic because change is coming.

This point is a bit more abstract. Worrying about health care costs is exhausting, and things are likely to get worse before they get better. However, there’s been a lot of news in the health care space that should bring a glimmer of optimism.

For instance, we heard about the partnering of three industry powerhouses to create a new health care company for their employees. It’s been fascinating to see how much chatter this announcement has already generated and will likely keep traditional employer health care vendors on their toes.

While the trend of employers building coalitions to tackle health care costs is nothing new and it’s too early to tell how successful this initiative will be, the bigger point is that this is a strong signal that change is desperately needed. More and more companies — regardless of what industry they’re in — are starting to realize that they’re all in the business of health care. And as we gain power in numbers, I believe we will build the momentum to create some serious change.

It’s tough to win in today’s health care world, and it’s likely going to get even more challenging over the next few years.  But if brokers and employers can provide the right level of guidance, education, and resources, they can help employees better mentally and financially manage their high-deductible futures.

SOURCE:
Vivero, D (2 July 2018) "3 ideas to ease the transition to a high-deductible world" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/02/08/3-ideas-to-ease-the-transition-to-a-high-deductibl/


HSA How-To

Health Savings Accounts can be tricky, employees have the control, employers and insurance companies are there to guide them in the right direction. Here is a how to helping guide to assist your customers to the right HSA plan.


If an employer wants to offer employees pretax payroll deferrals to their health savings accounts, the employer needs to first create a Section 125 plan or cafeteria plan that allows HSA deferrals.

A cafeteria plan is the only way for employers to offer employees a choice between taxable and nontaxable benefits, “without the choice causing the benefits to become taxable,” the IRS says. “A plan offering only a choice between taxable benefits is not a Section 125 plan.”

Here are five things to know about HSAs and Section 125 plans.

1. A Section 125 plan is just one of several ways for employers to help employees with funding their HSAs.

Employers offering HDHPs face the choice of whether and how to help their employees with the funding of the employees’ HSAs. The options include the following:

  • Option 1 – Employee after-tax contributions.Employers are not required to help with the employees’ HSAs and may choose not to. In this case, employees may open HSAs on their own and receive the tax deduction on their personal income tax return. This option allows for income tax savings, but not payroll taxes. A variation on this option is for employers to allow for post-tax payroll deferral (basically, direct deposit of payroll funds into an HSA without treating the deposit any differently than other payroll which may also be directly deposited into an employee’s personal checking account).

    This does not change the tax or legal situation, but it does provide convenience for employees and will likely increase HSA participation and satisfaction.

  • Option 2 – Employee pretax payroll deferral.Employers can help employees fund their HSAs by allowing for HSA contributions via payroll deferral. This is inexpensive and can be accomplished by adding a Section 125 cafeteria plan with HSA deferrals as an option. Employers benefit by not having to pay payroll taxes on the employees’ HSA contributions. Employees save payroll taxes as well. Plus, HSA contributions are not counted as income for federal, and in most cases, state income taxes. Setting up automatic payments generally simplifies and improves employee savings.
  • Option 3 – Employer-funded contributions.Employers may make contributions to their employees’ HSAs without a Section 125 plan if the contributions are made directly. The contributions must be “comparable,” basically made fairly (with a lot of rules to follow). This type of contribution is tax deductible by the employer and not taxable to the employee (not subject to payroll taxes or federal income taxes and in most cases, not subject to state income taxes either).
  • Option 4 – Employer and employee pretax funding.Employers can combine options 2 and 3, where the employer makes a contribution to the employees’ HSAs and the employer allows employees to participate in a Section 125 plan and enabling them to defer a portion of their pay pretax into an HSA. This is a preferred approach for a successful HDHP and HSA program, as it ensures that employees get some money into their HSA through the employer contribution and allows for the best tax treatment to allow for employees to contribute more on their own through payroll deferral.
  • Options for more tax savings.Some employers go beyond these options to increase tax savings even more. Although a number of strategies exist to increase tax savings, using a limited-purpose FSA (or HRA) is a common one. Generally, FSAs are not allowed with HSAs; however, an exception exists for limited-purpose FSAs. Limited-purpose FSAs are FSAs limited to payments for preventive care, vision and dental care. This provides more tax savings and employees use the FSA to pay for the limited-purpose expenses (dental and vision) and save the HSA for other qualified medical expenses.

HRAs can also be used creatively in connection with HSA programs. The HRA cannot be a general account for reimbursement of qualified medical expenses, but careful planning can allow for a limited-purpose HRA, a postdeductible HRA, or other special types of HRAs.

2. There are several benefits for an employer using a Section 125 plan combined with an HSA.

  • Employees can make HSA contributions through payroll deferral on a pretax basis.
  • Employees may pay for their share of insurance premiums on a pretax basis.
  • Employers and employees save payroll taxes (7.65 percent each on FICA and FUTA for contributions).
  • Employers avoid the “comparability” rules for HSA contributions although employers are subject to the Section 125 plan rules.

3. The employer is responsible for administering the Section 125 plan.

For payroll deferral into an HSA through a Section 125 plan, the employer must reduce the employees’ pay by the amount of the deferral and contribute that money directly into the employees’ HSA.

The employer may do this administration itself or it may use a payroll service or another type of third-party administrator. In any case, the cost of the Section 125 plan itself and the ongoing administration are generally small and offset, if not entirely eliminated, by employer savings through reduced payroll taxes.

Another administrative element is the collection of Section 125/HSA payroll deferral election forms from employees. Employers that have offered Section 125 plans prior to introducing an HSA program are familiar with this process.

Unlike other Section 125 plan deferral elections, which only allow annual changes, the law allows for changes to the HSA deferral election as frequently as monthly.

Although frequent changes to the elections create a small administrative burden on the employer, the benefit to employees is significant. Employers are not required to offer changes more frequently than annually.

The full extent of the administrative rules for Section 125 plans is beyond the scope of this discussion.

4. Contributions to HSAs under Section 125 plans are subject to nondiscrimination rules.

A cafeteria plan must meet nondiscrimination rules. The rules are designed to ensure that the plan is not discriminatory in favor of highly compensated or key employees.

For example, contributions under a cafeteria plan to employee HSAs cannot be greater for higher-paid employees than they are for lower-paid employees. Contributions that favor lower-paid employees are not prohibited.

The cafeteria plan must not: (1) discriminate in favor of highly compensated employees as to the ability to participate (eligibility test), (2) discriminate in favor of HCEs as to contributions or benefits paid (contributions and benefits test), and (3) discriminate in favor of HCEs as measured through a concentration test that looks at the contributions made by key employees (key employee concentration test). Violations generally do not result in plan disqualification, but instead may cause the value of the benefit to become taxable for the highly compensated employees or key employees.

The nondiscrimination rules predate the creation of HSAs and how the rules apply to HSA contributions is an area where additional government guidance would be welcome.

5. An employer needs a Section 125 plan to allow for HSA contributions through payroll deferral.

Can an employer allow for HSA contributions through payroll deferral without a Section 125 plan? No, not if the goal is to save payroll taxes. Employers can offer HSA payroll deferral on an after-tax basis without concern over the comparability rules or the Section 125 plan rules. Amounts contributed under this method are treated as income to the employee and are deductible on the employee’s personal income tax return. The lack of any special tax treatment for this approach makes it unattractive for most employers and with just a small additional investment of money and time, a Section 125 plan could be added allowing for pretax deferrals.

Here is an example: Waving Flags, Inc. does not offer health insurance or a Section 125 plan to its employees. Waving Flags does provide direct deposit services to its employees that provide it with their personal checking account number and bank routing number. Maggie, an employee of Waving Flags, Inc., approaches the human resources person and asks to have her direct deposit split into two payment streams with $100 per month being directly deposited to her HSA and the balance of her pay being deposited into her personal checking account. She provides Waving Flags the appropriate account and routing numbers and signs the proper election forms.

Waving Flags is not subject to the Section 125 nondiscrimination rules for pretax payroll deferral, nor is Waving Flags subject to the HSA comparability rules. Waving Flags is simply paying Maggie by making a direct deposit into her HSA. The $1,200 Maggie elects to have directly deposited to her HSA in this manner will be reflected in Box 1 of her IRS Form W-2 from Waving Flags as ordinary income. She will be subject to payroll taxes on the amount. She can claim an HSA deduction on line 25 of her IRS Form 1040 when she files her tax return.

Maggie benefits from this approach by setting up an automatic contribution to her HSA, which often improves the commitment to savings. Most HSA custodians will offer a similar system that HSA owners can set up on their own by having their HSA custodian automatically draw a certain amount from a personal checking account at periodic intervals. Employer involvement is not necessary. Individuals with online banking tools available to them may be able to set it from their personal checking account as well to push money periodically to an HSA.

SOURCE:
Westerman, P (2 July 2018) "HSA How-To" [Web Blog Post]. Retrieved from https://www.benefitspro.com/2018/01/01/hsa-how-to/


Change to 2018 HSA Family Contribution Limit

Yesterday, the IRS released a bulletin that includes a change impacting contributions to Health Savings Accounts (HSAs).

  • The family maximum HSA contribution limit has decreased from $6,900 to$6,850.
  • This change is effective January 1, 2018 and for the entire 2018 calendar year.
  • The self-only maximum HSA contribution limit has not changed. 
  • This means that current 2018 HSA contribution limits are $3,450 (self-only) and $6,850 (family).

 

Why is the change happening so abruptly?

The IRS continues to make adjustments to accommodate the new tax law that passed at the end of 2017. Tax reform updates require the IRS to implement a modified method of calculating inflation-adjusted or cost-of-living-adjusted limits for 2018. The IRS is now using a different index (Chained Consumer Price Index for All Urban Consumers) to calculate benefit-related inflationary adjustments.

Typically, the IRS adjusts the HSA limits for inflation on an annual basis about six months before the start of the impacted year. For example, the IRS established the 2018 limits in May 2017. Today’s bulletin supersedes those limits.

 

Resource:

• IRS Bulletin IRB 2018-10March 5, 2018


4 Main Impacts of Yesterday's Executive Order

Yesterday, President Trump used his pen to set his sights on healthcare having completed the signing of an executive order after Congress failed to repeal ObamaCare.

Here’s a quick dig into some of what this order means and who might be impacted from yesterday's signing.

A Focus On Small Businesses

The executive order eases rules on small businesses banding together to buy health insurance, through what are known as association health plans, and lifts limits on short-term health insurance plans, according to an administration source. This includes directing the Department of Labor to "modernize" rules to allow small employers to create association health plans, the source said. Small businesses will be able to band together if they are within the same state, in the same "line of business," or are in the same trade association.

Skinny Plans

The executive order expands the availability of short-term insurance policies, which offer limited benefits meant as a bridge for people between jobs or young adults no longer eligible for their parents’ health plans. This extends the limited three-month rule under the Obama administration to now nearly a year.

Pretax Dollars

This executive order also targets widening employers’ ability to use pretax dollars in “health reimbursement arrangements”, such as HSAs and HRAs, to help workers pay for any medical expenses, not just for health policies that meet ACA rules. This is a complete reversal of the original provisions of the Obama policy.

Research and Get Creative

The executive order additionally seeks to lead a federal study on ways to limit consolidation within the insurance and hospital industries, looking for new and creative ways to increase competition and choice in health care to improve quality and lower cost.


SELF-INSURED GROUP HEALTH PLANS

Are you looking to switch your company's healthcare plan to a self-funded option? Take a look at this informative column by the Self-Insurance Institute of America and find out everything you need know when researching the best self-funded plan for your company.

Q. What is a self-insured health plan?

A. A self-insured group health plan (or a 'self-funded' plan as it is also called) is one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, self-insured employers pay for each out of pocket claim as they are incurred instead of paying a fixed premium to an insurance carrier, which is known as a fully-insured plan. Typically, a self-insured employer will set up a special trust fund to earmark money (corporate and employee contributions) to pay incurred claims.

Q. How many people receive coverage through self-insured health plans?

A. According to a 2000 report by the Employee Benefit Research Institute (EBRI), approximately 50 million workers and their dependents receive benefits through self-insured group health plans sponsored by their employers. This represents 33% of the 150 million total participants in private employment-based plans nationwide.

Q. Why do employers self fund their health plans?

A. There are several reasons why employers choose the self-insurance option. The following are the most common reasons:

  1. The employer can customize the plan to meet the specific health care needs of its workforce, as opposed to purchasing a 'one-size-fits-all' insurance policy.
  2. The employer maintains control over the health plan reserves, enabling maximization of interest income - income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
  3. The employer does not have to pre-pay for coverage, thereby providing for improved cash flow.
  4. The employer is not subject to conflicting state health insurance regulations/benefit mandates, as self-insured health plans are regulated under federal law (ERISA).
  5. The employer is not subject to state health insurance premium taxes, which are generally 2-3 percent of the premium's dollar value.
  6. The employer is free to contract with the providers or provider network best suited to meet the health care needs of its employees.

Q. Is self-insurance the best option for every employer?

A. No. Since a self-insured employer assumes the risk for paying the health care claim costs for its employees, it must have the financial resources (cash flow) to meet this obligation, which can be unpredictable. Therefore, small employers and other employers with poor cash flow may find that self-insurance is not a viable option. It should be noted, however, that there are companies with as few as 25 employees that do maintain viable self-insured health plans.

Q. Can self-insured employers protect themselves against unpredicted or catastrophic claims?

A. Yes. While the largest employers have sufficient financial reserves to cover virtually any amount of health care costs, most self-insured employers purchase what is known as stop-loss insurance to reimburse them for claims above a specified dollar level. This is an insurance contract between the stop-loss carrier and the employer, and is not deemed to be a health insurance policy covering individual plan participants.

Q. Who administers claims for self-insured group health plans?

A. Self-insured employers can either administer the claims in-house, or subcontract this service to a third party administrator (TPA). TPAs can also help employers set up their self-insured group health plans and coordinate stop-loss insurance coverage, provider network contracts and utilization review services.

Q. What about payroll deductions?

A. Any payments made by employees for their coverage are still handled through the employer' s payroll department. However, instead of being sent to an insurance company for premiums, the contributions are held by the employer until such time as claims become due and payable; or, if being used as reserves, put in a tax-free trust that is controlled by the employer.

Q. With what laws must self-insured group health plans comply?

A. Self-insured group health plans come under all applicable federal laws, including the Employee Retirement Income Security Act (ERISA), Health Insurance Portability and Accountability Act (HIPAA), Consolidated Omnibus Budget Reconciliation Act (COBRA), the Americans with Disabilities Act (ADA), the Pregnancy Discrimination Act, the Age Discrimination in Employment Act, the Civil Rights Act, and various budget reconciliation acts such as Tax Equity and Fiscal Responsibility Act (TEFRA), Deficit Reduction Act (DEFRA), and Economic Recovery Tax Act (ERTA).

See the original article Here.

Source:

Self-Insurance Institute of America (Date). Self-insured group health plans [Web blog post]. Retrieved from address https://www.siia.org/i4a/pages/index.cfm?pageID=4546


Why Self-funded Healthcare is a Great Option for 2017

Have your health care options left you at a competitive disadvantage when it comes to attracting new talent? Switching to a self-funded healthcare plan can be a great way to reduce your healthcare cost while increasing your ability to attract new employees to your workforce. Take a look at this interesting article by Paul Johnson from Employee Benefits News and find out why you should switch to a self-funded healthcare plan.

Small- and mid-sized companies using traditional major medical plans are at a competitive disadvantage: either they are paying more in loaded costs than competitors that use smarter healthcare options, or they are finding it more difficult to hire employees because their competitors offer better plans.

With the new year and a new healthcare landscape, HR executives and benefits directors are now reconsidering their options, taking a much harder look at out how they can stop struggling to offer competitive benefits, and actually use their healthcare plans to recruit and retain the best talent, which will ultimately boost employee morale and profitability.

Annual premiums for employer-sponsored family health coverage reached $18,142, with workers paying $5,277 toward their plan in 2016, according to the Kaiser Family Foundation.

While companies still shoulder the lion’s share, worker contributions increased about 80% over the last 10 years; this cost doesn’t even include the employee’s co-pay or deductible.

To balance the scales and create a competitive advantage, more companies are turning to healthcare plans based on a self-funding model that offer more flexibility, customization and cost-savings while still improving the quality of care. Self-funded plans have been almost universal among large employers for quite some time, yet only in recent years have more HR departments at small- and mid-sized companies started to realize the benefits.

Customizing a self-funded model

Federal and state laws incorporate exceptions that enable companies to self-fund healthcare. This move provides for more flexibility while limiting risk for the employer. Companies can also choose to pay their claims directly, or work with third-party administrators to handle claims and administrative responsibilities.

Benefits can include medical, dental, vision, prescription medications and workers’ compensation. Unlike more rigid traditional insurance, companies can customize their offerings to address specific needs, such as investing in injury and chiropractic care in industries that require physical labor to robust maternity benefits for those with younger workforces.

Customized plans offer a win-win scenario — the company saves money while increasing productivity, and employees get access to the most pertinent care at an affordable cost.

To further increase convenience and cost efficiencies, companies can use third-party healthcare concierge services to help employees navigate the system, access the right level of care, and steer them away from needlessly expensive services and facilities. Also, businesses have the option to purchase stop-loss insurance to increase the type of healthcare provided to employees and limit the company’s liability in case of catastrophic illnesses and accidents.

Saving money

Self-funding is generally less expensive — 10% to 25% less, according to the Self Insurance Educational Foundation — than fully funded insurance because it doesn’t include marketing costs or profit margins associated with traditional insurance. As an added benefit, companies that self-insure are exempt from state insurance regulations and premium taxes, and are not subject to many government provisions.

Managing care delivery also has a dramatic impact on costs. For example, many medical services are needlessly performed in hospitals, where costs are higher. A third-party partner can direct employees to comparable lower-cost sites of service. Similarly, while costs of prescription medications can vary widely among pharmacies, understanding cost differentials and making decisions accordingly can bring costs down.

While advantageous for all types of employers, the ability to closely manage care delivery and place of service is especially important for companies with low-wage and young workers who have previously relied on high-cost emergency rooms for basic care or are unaccustomed to navigating the system.

Lowering workers’ comp

Employees often use workers’ comp for minor injuries requiring only first aid or for injuries sustained outside the workplace because they don’t have other options. With a self-funded plan – and with the assistance of a third-party partner to help employees access care through the right channels – businesses can cut such claims.

Likewise, organizations with an Experience Modifier Rate may lower their E-Mod score through a self-funded plan.

Owning healthcare data

Before the Patient Protection and Affordable Care Act, health insurance underwriters reviewed the medical data of a specified group of employees. Now, carriers must look at an entire community — often hundreds of businesses — and calculate a community rating based only on age, zip code and smoker status.

Because the ACA requires guaranteed-issue medical insurance, does not allow denial based on preexisting conditions, and precludes annual or lifetime limits, insurers must account for added risks when setting rates that are often detriment to the company and result in higher premiums.

Companies that self-fund have access to every claim, allowing them to benchmark their utilization against industry norms and address red flags, ultimately using insights garnered to better manage benefits and control costs.

Insurance isn’t a one-size-fits-all proposition, despite what the industry leads business owners to believe. Providing quality healthcare and maintaining profitability should not be mutually exclusive. For many companies, a self-funded plan becomes the gateway to managing skyrocketing healthcare costs while offering competitive benefits.

See the original article Here.

Source:

Johnson P.  (2017 January 9). Why self-funded healthcare is a great option for 2017 [Web blog post]. Retrieved from address https://www.benefitnews.com/opinion/why-self-funded-healthcare-is-a-great-option-for-2017