By: Sue Sieger, CFCI
2003 was a year of many changes and a lot of IRS guidance. There are so many acronyms floating around, it looks more like alphabet soup than official terminology and guidance. However, in 2003 there were significant decisions made and legislation passed that will impact the benefit arena as we have known it. The following highlights some of the significant changes that occurred in 2003 and some of the scheduled changes that take affect in 2004:
January 2003
February 2003
April 2003
May 2003
June 2003
July 2003
September 2003
October 2003
November 2003
December 2003
By Sue Sieger, CFCI
Debit cards have been on the scene for a few years now. Benefits Design Group, Inc. has opted to take a conservative approach on implementation of this reimbursement vehicle. There is much controversy that surrounds some of the administrative, behind the scenes processes necessary for compliance. Whereas many participants very likely would appreciate the convenience of swiping a card at a provider to draw dollars from the Flexible Spending Account, some electronic transactions may still require paper history as a follow up. In addition, Harry Beker of the IRS has indicated that several card swipes need to take place in the event that several co-pays happen at the same provider on the same day. For example, if a participant picks up three prescriptions on the same day from the same provider, and each has a $15 co-pay, three $15 swipes of the debit card will need to occur and a $45 single card swipe will not be acceptable.
Plan Sponsors may limit what the debit card is used for. It might only be active for co-pays. Thus any other dental, optical or medical expense would still be filed via paper. The debit card system works on a system of vendor codes, which are turned on to receive card swipes and process payments. If a participant happens to use a pharmacy located in a grocery store, the system may not anticipate all the vendor possibilities and the card swipe may come up as invalid. Manually turning the vendor code on for the grocery store swipe may be required by the TPA, at the time that the prescription is filled, to accept the claim for payment and then the vendor code would be turned off. This may actually cause delays and inconvenience to a participant. It may be difficult to police non-eligible purchases that occur at the same vendor at the same time as the purchase of the eligible expense. The OTC ruling has debit card vendors scrambling to figure out system safeguards now that OTC items may be purchased at places like gas stations. Setting up vendor codes will be more complex and paper history would be required to satisfy the additional claim filing requirements regarding dependent information. It will be harder to prevent unreasonable quantities from being purchased at the end of the plan year. In other words, a new can of worms has been opened.
The 1099 controversy was ended when President Bush signed the Medicare legislation in early December 2003. The legislation established an exception to the Form 1099 reporting requirements for health FSAs and HRAs.
We will continue to watch this area evolve and enter the debit card arena when we feel that the timing is appropriate to ensure client satisfaction.
By: Shawn Bresnahan
Below are a few reminders about eligible medical care expenses that you may not realize are reimbursable under the unreimbursed medical account. The following illustration may help communicate these examples to employees so that they utilize their accounts effectively.
*Note: Participants in the Unreimbursed Medical Account (FSA) or Health
Reimbursement Arrangement (HRA) may be required to submit additional
documentation from a third party for these expenses.
By: Sue Sieger, CFCI
September 3, 2003, the Internal Revenue Service announced what will probably be the most significant change for Section 125 and Section 105 benefit plan administration of the year. Contrary to the previous negative position regarding over-the-counter (OTC) Medications, the IRS Revenue Ruling 2003-102 allows employees to purchase over-the-counter medications and request reimbursement from FSA and HRA plans, if the plan design permits, and if they are not for cosmetic purposes. The ruling, however, specifically excludes vitamins and other dietary supplements for general health purposes. If the plan document permits, the OTC expenses will be eligible for reimbursement immediately. Employees will not be permitted to change their elections because of the ruling, however, they may use established FSA accounts to purchase eligible items if they have not claimed their full balance to date.
There is some speculation as to the timing of the Revenue Ruling. Could it be that federal employees are now able to participate in Flexible Spending Accounts are finding it a little hard to live by their own rules? Has the FDA approval of yet more prescriptions to be released as OTC items prompted more attention to this area? Whatever the reason, the results will make OTC medications more affordable because of their new tax deductible status.
Benefits Design Group, Inc. participated in a national teleconference on September 30, 2003 sponsored by the Employee Benefits Institute of America (EBIA). Tom McCormick shed some light on the Revenue Ruling and offered some examples of practical applications. We have prepared a "participant friendly" version of the teleconference and forwarded to each employer contracted with us for claims administration. Key points from the teleconference are highlighted below:
1.
Per the
IRS, the Revenue Ruling 2003-102 was merely a clarification of existing tax regulations,
which means that there is no specific effective date. Expenses that have been
incurred in a current plan year can be submitted immediately for reimbursement
(if the Plan Document language permits).
2.
Any
client that uses the Plan Document provided by Benefits Design Group, Inc. will
be able to reimburse OTC items immediately without the need for a plan
amendment. Language in the plan document is written broad and does not
specifically exclude any medical item.
3.
Current
plan participants will NOT be able to adjust their elections because of the IRS
clarification, as this does not constitute a qualifying event.
4.
New
claim filing rules for OTC medications include the mandatory inclusion of the
dependent name on the receipt to identify which dependent the item is purchased
for. In addition, the item must be clearly identifiable on the cash register or
sales receipt. Claims will be returned for clarification if not filed properly.
5.
The IRS
will not be providing an all-inclusive list of every eligible OTC medication. A
participant unsure that their purchase will be eligible should check with our
office prior to purchase.
6.
Categorically
speaking, the IRS has clearly said that antacids, pain relievers, allergy
medications, and cold medications are reimbursable without specific proof of
illness.
7.
Some
items will require a doctor's letter for verification of the medical condition
currently being treated. Examples include Vitamins, Alternative Hormone
Replacement Therapy, Weight Loss Drugs, Pills for Lactose Intolerance, etc.
(Participant is required to update Dr.'s letter once each plan year.)
8.
General
Health, Cosmetic and Toiletry items not eligible. Items include toothpaste,
toothbrushes (even if dentist recommended), chapstick, acne medication solely
for cosmetic reasons, One-a-day vitamins, Feminine Hygiene products, etc.
9.
Items
that are purchased in a plan year should be for a supply that can be reasonably
used in that plan year. Stock piling will not be permitted. Any single item
purchased in quantities of 5 or more will be scrutinized and may be denied.
10.
Items
that are classified as medical supplies, fall outside the current ruling. These
items are still considered eligible and include crutches, bandages, first aid
kit, contact lens supplies, etc. A receipt indicating date of purchase and
amount paid is needed for reimbursement.
Please feel free to contact our offices directly or refer employees to the toll-free number for clarification on specific expenses. Most employees, over time, will learn to navigate the difference between an expense that is automatically eligible, those that require doctor's letters and those that will not be eligible. When in doubt ASK!
By Shawn Bresnahan
The following are helpful tips a participant can use when trying to determine which has the greater advantage, the Dependent Care FSA or the Federal Child Care Tax Credit.
A qualifying individual is a dependent who is under the age of 13, or a spouse or dependent, who is physically or mentally incapable of self-care.
Determining whether to participate in a Dependent Care FSA through salary reduction or claim the expenses through the Dependent Care Tax Credit can depend on several factors unique to the individual. Below are general rules of thumb when determining which option is best for each individual. Individuals should consult with their tax advisors to determine which option would benefit their particular situation.
Generals Rules to Follow To Determine Which Program Provides the Greatest Tax Benefit:
Remember, when making your choice to take either the Federal Child Care Tax Credit or participate in a Dependent Care FSA through salary reduction, the no-double-dipping rule prohibits claiming the tax credit AND Dependent Care FSA for the same expenses.
Childcare Expenses; is it Flex FSA
or Flex Credit (pdf, 28k)
By: Sue Sieger, CFCI
The vast majority of our customer service calls, question the eligibility of events that allow a change to a participants election(s). These questions are commonly prompted by a change in insurance plans mid-year, an unexpected expense, or a change in family circumstances. The increase in insurance premiums each year forces employers to look at carrier and plan alternatives. Although it is recommended that an employer set up the flexible benefit plan to coincide with the insurance plan renewals, some plans are not running that way. If the employer restructures the insurance plan mid-year and it affects the premiums, the participant has the option of accepting the rate change or canceling their coverage. The same options exist in the event that the plan benefits are drastically changed or curtailed.
Why can't I change my Medical Reimbursement Flexible Spending Account when my employer changes our health insurance deductible or co-pays?
Participants have a difficult time understanding why they cannot change their Medical Reimbursement Flexible Spending Account to accommodate the employer-initiated deductible and co-pay changes. Because the IRS permits several types of medical and medical related expenses to be interchangeable for reimbursement purposes, and a participant is not required to stick to their original list of uses, it would be impossible to differentiate how much of a Medical Reimbursement account is allocated for which type of expense, thus the IRS does not allow unexpected expenses on the list of qualifying events.
Most recently, the Over-the-counter Revenue Ruling has lit up the phone lines with the same question over and over.
If the IRS has changed the ruling regarding OTC medications, can I add money to my Medical Reimbursement Flexible Spending Account, since I didn't know this was going to happen at the time of my enrollment?
Unfortunately, the answer is NO.
January of 2001, the IRS issued final guidance that clarify when or if a participant has a qualifying event that allows a change to their election. Only a qualifying event that allows an employee to complete the necessary paperwork and adjust their account values for pre-tax options currently active within a plan year.
The following is a listing of IRS approved qualifying events:
a.
Change
in Employee's legal marital status. (This includes marriage, divorce, death of
a spouse, legal separation, and annulment.)
b.
Change
in number of tax dependents. (This includes birth, adoption, placement for
adoption, and death.)
c.
Change
in employment status for the Employee, spouse, or dependent if the benefit
eligibility is gained or lost as a result of the event.
d.
Dependent
satisfies (or ceases to satisfy) dependent eligibility requirements. (This
includes attainment of age, gain or loss of student status, marriage, or any
other similar circumstances.)
e.
Change
in residence of Employee, spouse, or dependent. (Change permitted if the event
affects the Employee's eligibility for the benefit coverage.)
Change of status events that permit dependent care and premium changes also include the following:
a.
Significant
cost increase/decrease in coverage for you or your dependent(s).
b.
Significant
curtailment in coverage for you or your dependent(s).
c.
Addition
or elimination of benefit package options under yours or your dependent's plan.
d.
Change
in coverage or open enrollment of spouse or dependent's coverage under another
Employer's plan.
e.
Judgement,
court order or decree resulting from divorce, legal separation, etc. (i.e.
child support order).
Please contact Benefits Design Group, Inc. at 1-800-554-7213 or 1-800-342-8235 if you have any specific questions or concerns.
The annual ECFC conference held this year in Chicago, IL, provided several key announcements; including guidance on debit cards and possible reimbursement of over-the-counter medicines.
IRS Health and Welfare Benefits Branch Chief Harry Beker commented on several topics at this year's annual conference. His comments are highlighted below:
The House of Representatives passed a proposal on June 26, 2003, that would let employers offer employees two new types of tax-favored savings accounts to help pay for health care expenses.
The bill was initially sponsored by House Ways and Means Committee Chairman Bill Thomas, R-Calif. It has since been attached to House passed-Medicare prescription drug benefit legislation. The bill must be next passed by the Senate. In addition, the House and Senate versions must be "reconciled" to eliminate differences; and then the House and Senate must pass the compromise bill again. After that, it would go to the President for signature. (Status reflected at print time of this newsletter.)
The Health Savings and Affordability Act of 2003 would establish Health Savings Accounts (HSA) and Health Savings Security Accounts (HSSA) that employees could use to fund health care expenses. In addition, the act would modify the IRS "use it or lose it" provision for flexible spending accounts, so that participants would be permitted to roll over up to $500 of their unused account balances each plan year. Rollovers could be put towards next year's FSA, or to a HSA or to their 401(k) or 457 plan.
The intent is that a HSA can be established by anyone covered by a health plan that has an annual deductible of at least $1,000 single and $2000 family coverage. An individual with an HSA could contribute to the account no more than 100% of the deductible under his or her health plan. HSAs are viewed as comparable to Medical Savings Account (MSA), except that MSAs are only available to the self-employed and businesses with less than 50 employees.
Additionally the bill establishes Health Savings Security Accounts (HSSA). A HSSA could be established by any individual who is either uninsured or covered by a health plan with an annual deducible of at least $500 for single-coverage and $1000 for family coverage. Under the HSSAs, the annual contribution limit would be $2000 for individuals whose income does not exceed $75,000, and $4000 for family coverage if the participant's income is no more than $150,000. Beyond the specified income limits, the allowed contribution would be lower.
Individuals age 55 or older could make "catch-up" contributions to an HSSA of $500 in 2004, rising incrementally to $1000 in 2009.
Both the HSA and the HSSA could be offered under a cafeteria plan. Employer contributions would be tax-free and individual disbursements will be tax-free so long as they are used for qualified medical expenses. The plans proposed are portable and are expected to operate consistent with individual retirement accounts.
With Archer Savings Accounts expiring at the end of 2003, the latest version of the bill seems to include something for everyone, with no clear idea of how any would work with current employer plans. If passed as is, which according to the Employers Council on Flexible Compensation's (ECFC) account is unlikely, "there would be an even more confusing variety of overlapping plan options."
In related action, the House and the Senate both passed Medicare reform proposals at the end of June 2003. Both proposals add a prescription drug benefit to the federal health care program.
The House bill would provide for a $35/mo premium for coverage beginning in 2006. The prescription drug benefit would be subject to a $250 deductible. Thereafter seniors would pay 20% of the next $1750, and the plan would pay the rest. The out-of-pocket limit is $3500.
The Senate bill is similar however it proposes a $275 deductible. Thereafter seniors would pay 50% of the next $4225. If out-of-pocket costs exceed $3700, then he or she would be responsible for 10% of further costs.
At print time of this article, it was suggested that a conference committee would soon convene to resolve the differences between the two versions.
The IRS published Internal Revenue Bulletin 2003-22, dated June 2, 2003, which includes Revenue Rulings 2003-57, dealing with surgical procedures, and 2003-58, dealing with non-prescription items. The recent guidance is summarized as follows:
Revenue Ruling 2003-57 provides that expenses for cosmetic surgery following an operation that causes disfigurement or that is needed to correct a defect caused by a disease or that interferes with the normal functioning of a body are tax deductible. Therefore, expenses paid for breast reconstruction surgery following a mastectomy for cancer or LASIK and radial keratotomy vision correction surgery are deductible. The Revenue Ruling also goes on to reiterate that teeth whitening procedures are NOT deductible, as the teeth whitening procedure does not treat a physical or mental disease or promote the proper function of the body, but instead is directed at improving appearance.
Revenue Ruling 2003-58 restates the IRS's position that amounts paid for over-the-counter drugs, even when recommended by a physician, are not deductible. The IRS bases its position on Section 213 (b) of the Code, which permits an amount paid for a medicine or drug to be taken into account for purposes of medical expense deduction only if the medicine or drug is a prescribed drug or insulin. A prescribed drug is defined as a drug or biological that requires a prescription of a physician and must be filled by a pharmacist.
In addition, Section 213(e)(2), the phrase "medicine and drugs" includes only those items that are "legally procured." Whereas this Revenue Ruling does not specifically address prescription drugs imported from Canada, there has also been recent guidance issued by the U.S. Food and Drug Administration (FDA) discussing the application of the Federal Food, Drug, and Cosmetic Act to Canadian imports. Even though a drug may be lawfully obtained in a local jurisdiction, it will not be legally procured if obtained in violation of U.S. federal law. For example, even though state law may allow the purchase and use of marijuana for medical purposes, or small amounts of drugs sold abroad and imported for a patient's treatment is allowable, it still violates federal law. The FDA Position on Foreign Drug Imports is available at www.fda.gov/ora/import/, in which the FDA concluded that "virtually all drugs imported to the U.S. from Canada by or for individual consumers" violate the Food and Drug Act and thus federal law. Therefore these expenses are not tax deductible through itemized deduction or health care reimbursement through a Section 105 or Section 125 plan.
On another related FDA action, two more antihistamines Allegra and Zyrtec are being considered for over-the-counter (OTC) status. The FDA agency's 2004 budget sets a goal of "becoming more proactive in recommending key potential switches" from prescription to OTC status in order to give consumers more choices and reduce health care costs. In the event that more pharmaceuticals are switched to over-the-counter status, thus affecting the tax deductibility of the medicine, health plan costs will decrease, as consumers will be faced with higher out-of-pocket expenses. OTC medicine does not fall within the guidelines of Section 213 and will not be tax deductible under IRC Section 125 or Section 105. Furthermore, change to OTC status doesn't qualify as a change of status event. Dollars allocated for prescriptions that become OTC during a plan year will have to be used in some other eligible way or forfeited.
Revenue Ruling 2003-58 clarifies however that non-prescription items such as bandages and diagnostic services, such as blood sugar test kits, would be considered tax deductible as long as they met the criteria imposed by Code Section 213(d)(1). That section says medical care includes amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, or for the purpose of affecting any structure or function of the body. Therefore, crutches purchased for use by a person with a broken leg, contact lens solutions for contact lens wear, bandages purchased for use by someone that has had surgery, etc. would all be considered tax deductible.
The IRS issued Revenue Ruling 2003-43 on May 6, 2003, which "blesses" the use of debit cards for FSAs and HRAs, but only if claims substantiation requirements are satisfied for each claim. Debit cards allow FSA and HRA participants to pay providers at the time of the service or sale.
The required elements of a compliant electronic payment card system include: (1) the system may utilize either a debit card, stored value card, or a credit card; (2) the card must be turned off upon termination of employment; and (3) each employee issued a card must provide a special certification at the time of enrollment in the plan and each year thereafter; (4) employees must re-affirm special certification each time the card is used and the cardholder agreement itself must contain certification language; (5) the cardholder must acquire and retain sufficient documentation for any expense paid with the card, including invoices or receipts; (6) the card must be limited both as to the amount and provider; (7) all claims must be adjudicated (no sampling permitted) and auto-adjudication (via card swipe) is only permitted if co-payment matches the claim, claim is recurring or previously approved; and (8) plan must have certain procedures to collect a "bad" claim in the event that through "after-the fact adjudication" it is deemed ineligible.
The guidance raised a red flag with regard to Form 1099 reporting obligations for plan sponsors and administrators that use electronic payment cards whereby the funds are transferred to the provider from an employer or plan.
Representatives of leading card vendors have had preliminary discussions with the Treasury and IRS representatives. The discussion compares the FSA/HRA debit card to an employee business card expense. The employee as the cardholder, is responsible for the amount due. Because the employee is making payments to a service provider by means of the card, Form 1099 reporting should not apply to FSA/HRA cards, as it does not in the case of the business card expense. This still needs to be sorted out. In an effort to offer administrative relief for debit card vendors and plan administrators, the H.R. 2351 bill that passed the House in late June 2003 regarding HSA, HSSA, FSA rollovers, also included a Form 1099 exemption for FSAs and HRAs.
With Senate support, hopefully this matter should be clarified once and for all later this summer.
Revenue Ruling 2003-62 issued on June 23, 2003, addressed the issue of retirees funding their medical coverage through a cafeteria plan using qualified retirement plan distributions, so that the medical coverage could be pre-tax.
The IRS ruled that "amounts distributed from a qualified retirement plan that the distributee elects to have applied to pay health insurance premiums under a cafeteria plan are includible in the distributee's gross income." The same result occurs if the retirement plan distribution are applied directly to fund the medical flexible spending account." The IRS based its conclusion on the general rule of Code Section 402(a), which provides that distributions from qualified retirement plans are taxable to the general rule for direct rollovers and employer securities do not relate to cafeteria plans.
On May 28, 2003, President Bush signed into law JGTRRA. Besides another acronym to remember, this new law accelerates some of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). JGTRRA now provides that the Child Tax Credit will be $1000 for years 2003 and 2004. After 2004, the credit will revert to the schedule established under EGTRRA and will be reduced to $700 for 2005-2008, increase to $800 in 2009, and will revert back to $1000 in 2010. Checks for up to an additional $400 will be issued to eligible individuals this summer, based upon 2002 income tax returns.
JGTRRA also accelerates the following previously enacted tax provisions:
1.
increases
the taxable income levels of the 10% rate bracket so that the income levels
currently scheduled for 2008 become effective in 2003 and 2004;
2.
reduces
income tax rates, so that for 2003 and thereafter the regular income tax rates
in excess of 15% are 25%, 28%, 33%, and 35%; and
3.
implements
marriage penalty relief that included increasing the basic standard deduction
amount for joint returns to twice the basic standard deduction amount for
single returns effective for 2003 and 2004.
The accelerated tax reductions will reduce income tax, however it will also reduce savings underneath a cafeteria plan arrangement. JGTRRA's increase in the Child Tax Credit may also affect employees' decisions to participate in the dependent care flexible spending account.
COBRA originally enacted in 1986, and soon thereafter the Department of Labor (DOL) issued ERISA Technical Release 86-2 (June 26, 1986), which set forth a model notice. Since that time, no additional guidance has been issued, nor has the model been updated in consideration of the numerous statutory changes affecting COBRA.
The Proposed Regulations are proposed to be effective for plan years beginning on or after January 1, 2004. If the DOL stays on track with this timeline, employers and plan administrators will need to act quickly to comply. Employers and plan administrators may need to change their COBRA administration policies and procedures, adopt new COBRA notices and revised the summary plan descriptions for their health plans.
The following highlights some of the proposed changes that Employers will need to comply with:
On February 20, 2003, the Department of Health and Human Services (DHHS) published the final HIPAA security regulations. This completes the third phase of the final guidance on HIPAA Adminstrative Simplification. Previously guidance was released on Privacy and Electronic Data Interchange (EDI).
The Final Security Regulations do not postpone compliance with the existing HIPAA privacy and EDI requirements. Implementation of the HIPAA Privacy requirements is required by April 14, 2003 (April 14, 2004 for plans with less than $5 million in annual gross receipts). The Final Security Regulations schedules the full implementation of the security requirements by April 21, 2005 (April 21, 2006 for plans with less than $5 million in annual gross receipts).
The Final Security Regulations narrow the scope of information to which covered entities must safeguard from: all electronic health information pertaining to individuals, to: only protected health information (PHI) maintained in electronic form. The Final Security Regulations also clarify that covered entities must secure PHI in electronic form while it is in the custody of the covered entity, when it is in transit between covered entities and when transmitted to a non-covered entity. The Final Security Regulations also impose new health plan document amendment requirements on health plan sponsors (similar to the plan amendment requirements in the Privacy Regulations) and require additional security provisions for business associate agreements.
The Final Security Regulations require all covered entities to appoint a security official and assign all of the covered entity's security responsibilities to that individual. DHHS clarified that the same person named the Privacy Officer could also be named the Security Officer.
DHHS stated that a covered entity must include "at home" functions in its security processes. Significantly, plan sponsors must make sure that employees who have access to electronic PHI from their home computers comply with the security requirements, such as encryption and/or secured line access. Business Associate Agreements with TPAs and other business associates should ensure that home-based access utilized by the business associate complies with the security requirements.
Even though compliance with the security provisions is a ways off, you should assemble a security team and learn the security rules. Prior to the 2005 deadline, you should develop security awareness training and amend your plan documents and business associate agreements to include the Final Security Regulations.
John R. Hickman, Esq., CFCI, Alston & Bird, LLP reports in the March 2003 issue of the Flex Reporter that the "DHHS representatives have informally given conflicting signals on the status of health flexible spending accounts (FSAs) under HIPAA's Administrative Simplification provisions. In the absence of an express carve out (as there is for HIPAA's portability requirements) it would appear that Health FSAs would be health coverage subject to HIPAA. For now the Health FSA plan must comply along with the other covered entities."
Harry Beker, Russ Weinheimer, and John Richards of the IRS's Associate Chief Counsel Office commented on several issues during the 2003 Annual Conference of the Employers Council on Flexible Compensation (ECFC), held mid-March in Arlington, Virginia.
As the IRS business plan year will draw to a close June 30, 2003, we will likely receive guidance on the following:
1.
Use of
Debit cards for Health FSAs, and possibly HRA's and Dependent Care Accounts.
2.
How the
three-year look back rule works for taxing LTD benefits when an employer that
previously paid for LTD premiums allows employees under a cafeteria plan to use
flex credits to pay the premiums on either an after-tax or pre-tax basis.
3.
COBRA
as it relates to mergers and acquisitions.
4.
Revenue
Ruling will likely be issued prohibiting pension reduction plans to pay for
health benefits.
Other informal remarks include clarifying information relating to Transportation plan vouchers. Employers may use the "significant administrative cost" standard in IRS Notice 94-3 for determining whether a voucher or transit pass is readily available until the 1% rule takes affect in 2004.
In another clarifying statement, it was acknowledged that collecting pre-tax amounts in a subsequent plan year to correct under withholdings from a former plan year would probably be okay.
Harry Beker created the greatest murmurs from attendees when stating that "for tax considerations only, an employer could design its cafeteria plan to permit employees to pay premiums on a pre-tax basis (1) for a spouse's coverage under the group health plan sponsored by the spouse's employer; or (2) for an individual policy owned by the spouse (which is a departure from its prior informal position). Mr. Beker mentioned two caveats, however; first a health FSA cannot reimburse insurance premiums (any such reimbursement would need to be made through the POP portion of the cafeteria plan); and second, there can be no double dipping."
Aside from Mr. Beker's comments, this potentially draws in application of other federal laws like HIPAA, COBRA, Pregnancy Discrimination Act, and state insurance laws. Due to the potential legal issues, formal guidance would be preferred before an employer considers restructuring existing cafeteria plan accounts and lists of eligible expenses.
Final area of discussion at the conference was regarding HRAs and the calculation of COBRA premiums. Mr. Weinheimer commented, "that for the first year of a health reimbursement arrangement (HRA), it would be improper to set the annual COBRA premium to equal the annual coverage amount" (which is what most health FSAs do). After describing the statutory rules for setting the COBRA premium, Mr. Weinheimer mentioned, "that an employer might ask the HRA promoter to provide a reasonable estimate of what the COBRA premium should be. And as a rule of thumb, an employer might consider setting the first-year annual COBRA premium to be about 75-80% of the first-year annual coverage."
The Department of Health and Human Services (DHHS) Office of Civil Rights (OCR) is the agency responsible for enforcing HIPAA privacy, and it has informally indicated that its enforcement strategy initially will be complaint driven.
Complaints to the OCR must 1) be filed either on paper or electronically; 2) name the entity that is the subject of the complaint and describe the acts or omissions believed to be in violation of the applicable requirements; and 3) be filed within 180 days of when the complainant knew or should have known that violation of the privacy rules occurred (unless the time limit is waived for good cause). Individuals may, but are not required to, use OCR's Health Information Privacy Complaint Form, which will soon be available at www.hhs.gov/ocr/hipaa.
In addition, complaints can be filed direct with a covered entity. Keep in mind, however, that complaints can only be filed for violations occurring on or after April 14, 2003.
On March 20, 2003, Tom Herman of the Wall Street Journal reports that, "White House backs allowing Section 125 Health Care Flexible Spending Account participants to roll over up to $500 of unused funds to the following plan year, among other options." Workers would also have the option of withdrawing the money and paying taxes on it or deferring taxes by putting it into a 401(k) account or similar retirement vehicle. This concept was also introduced during the Clinton administration, as well as a part of President Bush's campaign platform, and most recently as a part of his State of the Union Address.
The Employer's Council on Flexible Compensation (ECFC) estimates that 4.5 to 6.8 million workers utilize a Health Care Flexible Spending Account each year. Of that participation, the ECFC predicts that 20% forfeit dollars under the Use-It-Or-Lose-It provision of the Section 125 regulations. They go on to report that a participant's tax savings far outweigh the forfeitures.
What does this mean? Well, backing the concept, even in bill format, does not guarantee that this will pass into law. Tara Bradshaw of the Treasury Department says that the "first priority is the president's jobs and growth package. Once that has passed, we will turn to other proposals in the president's budget." Stay tuned as we will continue to monitor the path of this bill.
The Pension and Welfare Benefits Administration (PWBA) has been renamed by the Department of Labor (DOL). Effective February 3, 2003, the PWBA will be known as the Employee Benefits Security Administration (EBSA). According to the DOL, the name change is intended to clearly communicate the agency's mission of protecting the private-sector employee benefits. A new toll-free participant assistance phone number has been established, 1-866-444-EBSA (3272). The same functions will be handled by the renamed agency.
Form 5500 filing remains relatively unchanged for benefit plans beginning in 2002. Prior to the suspension of the Form 5500 filing requirement for most cafeteria plan filers in April of 2002, most employers would have forwarded their annual Form 5500 to this agency of the DOL. Section 125 plans with component plans, subject to ERISA, and with more than 100 participants at the beginning of the plan year, or a plan that is funded, are subject to Form 5500 filing requirements.
By Sue Sieger, CFCI
Unlike in years past, the change of the IRS business plan year from a calendar year to a July to June time period has resulted in a reduced amount of surprises in December. For that reason, the beginning of 2002 included a list of items that became effective January 1, 2002 and then continued a flurry of IRS activity in the spring. The following are highlights from 2002:
Effective January 1, 2002
During 2002
Effective January 1, 2003
The 108th Congress has lots on its "to do" list for 2003. The shift in power to Senate Republicans may yield the spotlight to some health care and domestic issues that had previously stalled amongst the division of Senatorial power. The Republican led Congress will likely tackle items like the growing uninsured population; prescription drug plan for seniors; rollovers in health care FSAs; efforts to make Long Term Care a cafeteria plan benefit, retiree health benefit exclusion from pension payments; as well as retirement savings reforms. Homeland Security and the unrest abroad still may take some "front burner" time; however, the shift in Senatorial power makes this an ideal time address the health care crisis and domestic problems at home. Tax credits and cost savings measures in the area of health care may continue to stimulate economic growth. However, not far after the holiday shopping season, public tone was still somewhat cautious. Polling results indicated that some are concerned over the impact that more tax cuts will have on the deficit. Many will likely go back to a "wait and see" approach as the year progresses to determine their spending and investing patterns for 2003.
By: Sue Sieger, CFCI
The cover story of the December 16, 2002 issue of Business Insurance headlines "Few employers at work on HIPAA compliance." In addition, Lisa Murphy, a member of the Washington law firm of Miller & Chevalier, is quoted in the article to say, "generally employers are either in the dark or denial" about compliance. Ms. Murphy also mentions that many employers had taken a wait-and-see attitude hoping that the federal gov