The IRS has proposed that the issuers of fully insured and self-insured health plans be responsible for paying fees to fund the Patient-Centered Outcomes Research Institute.

Background

The Patient-Centered Outcomes Research Institute (PCOR) was established as a provision of the Affordable Care Act. “The purpose of the Institute is to assist through research, patients, clinicians, purchasers, and policymakers in making informed health decisions. This will be done by advancing the quality of clinical effectiveness through research.”

How this Affects Plan Sponsors

This directly affects clients with HRA plans. Sponsors of HRA plans will be expected to pay the fees if their plan year ends on or after October 1, 2012 and before October 19, 2019. “The fee is $1.00 multiplied by the average number of covered lives.” The fee then increases to $2.00 for plan years ending on or after October 1, 2013. For subsequent plan years the fees will increase based on health care inflation.

Plan sponsors who have two or more self-insured plans with the same plan year, will be treated as a single plan leaving only one fee to be paid instead of two. Examples of this would be an HRA and a self-insured medical plan or an HRA and a self-insured prescription drug plan.

There is still time to turn in written or electronic comments about the fees by July 16, 2012. Requests to speak at the public hearing and outlines of topics must be turned in by July 30, 2012.  A hearing is scheduled for August 8, 2012.

What do we know?

• Plan Sponsors with HRA plans are effected
• The fee is $1.00 for first year, $2.00 for second year and will be subject to adjustment based on changes in the per capita National Health Expenditures as reported by the Treasury
• Plan Sponsors only have to pay one fee if they have two or more self-insured plans with the same plan year
• This proposal is still in progress as of 5/11/2012 – changes will be coming
• Public hearing on 8/8/2012

For more information please go to:

http://www.gpo.gov/fdsys/pkg/FR-2012-04-17/pdf/2012-9173.pdf

Google and Lowe’s are well-known companies with many locations. Although their products are very different from one another, the one thing they have in common is unique health benefits. Google has one of the lowest turnover rates of any company in the world, and their benefits include an on-site doctor, a physical therapy clinic and a chiropractic clinic. While they do not pay for employee health insurance, workers are able to use the on-site resources freely. Lowe’s is a great place for anyone with a family history of cardiac disease. They offer great benefits with a special heart surgery perk. Anyone who must undergo surgery enjoys a zero-dollar bill. Transportation, lodging, copay amounts and all other charges are covered. There are several other companies that offer great benefit packages with unique features. Many offer on-site care in place of health insurance coverage. Others offer decent health plans with physical benefits such as gym memberships, discounts on wellness aids and many other perks. One thing all of these employers have in common is that they go above and beyond the normal group benefit plan by offering one or more unique additions.

Not all employers have adequate space to install a free on-site gym, and many companies do not have enough money to keep a doctor on staff. It may not be possible for small businesses to pay for every employee’s heart surgery. However, every employer can learn from the examples of Google, Lowe’s and the many other companies offering unique benefits. Giving employees paid gym memberships, offering a free annual wellness retreat or giving vouchers for health food stores are all affordable additions to any benefits package. There are certainly plenty of other ways to stand above the competition.

No employer wants to lose key employees, and it is even worse to lose employees to competitors because of health benefits. Turnover is expensive, so consider the cost of losing employees in comparison with the cost of offering a more enticing benefits package. Research consistently shows that healthier employees are more focused, reliable and productive. Every company needs these types of individuals for optimal success, so it makes sense to invest a little more in a benefits package that will make healthy living an easy task for employees. Discuss what plan options are available with an agent, and start making positive changes for a more successful future.

Disability insurance – sometimes called disability income insurance – helps protect workers’ incomes against the possibility of loss of work from illness or injury.

What it covers

In a nutshell, disability insurance helps replace a portion of a worker’s income if that worker loses his or her income due to an injury or illness. Typically, disability insurance policies will replace between 50 and 65 percent of a worker’s income – a percentage low enough so that most people will rather return to the work force as soon as possible, but high enough so that most workers can at least keep a roof over their heads, the lights on in their homes, and some food on the table for themselves and their families when they recover.

Broadly speaking, there are two kinds of disability insurance policies – short-term disability insurance for events that disrupt income for less than 90 days, and long-term disability policies, which cover benefits for a longer period of time.

Advantages of Group Coverage

Group disability coverage has advantages for both the employer and the work force. Advantages to the employer include:

• Reduced costs compared to offering individually underwritten policies to everyone.
• Increased employee loyalty – especially after someone in the work force has a claim and word gets out that these valuable benefits kicked in.
• Tax deductible premiums, easy streamlined administration
• List billing

Advantages of group disability insurance to the worker include the following:

• Affordability – The employer subsidy makes it possible for workers to get coverage they would be unable to get on their own.
• Pre-existing conditions that would make it impossible for employees to get coverage as individuals may be waived in a group plan.
• Streamlined application process – no medical exam required
• No prior year tax returns or income verification are required. The employer reports income information to the disability insurance carrier

In addition, some policies are portable: If the employee leaves the company, he can sometimes keep the policy, though he loses the employer subsidy. Portability is an important feature, because disability insurance can be difficult to qualify for on the individual market.

Disadvantages of Group Disability Insurance

All coverages have advantages and disadvantages. These are some of the disadvantages:

• Less flexibility. Managers and supervisors may have different needs and risk profiles compared to rank and file employees.
• Less coverage. Some workers may be able to get more robust plans on the individual market than carriers offer via group plans.
• Benefits are taxable to the recipient.
• More restrictive definitions. With disability insurance policies, the definition of the word “disability” in the contract itself is of paramount importance. For example some policies, known as own occ policies, pay benefits if you cannot work in your own profession. Other policies will not pay benefits if the worker can work in any occupation. All things being equal, own-occ policies are preferable – but they tend to have higher premiums, and are less prevalent in the group disability insurance market.

Taxation of disability insurance – Pretax Benefit Plans

Group term premiums are generally deductible to the business as a business expense, just like any other wage expense. The value of the premiums, however, is not usually taxable as income to the worker.

Disability insurance benefits may or may not be taxable, depending on the circumstances. Generally, if the recipient didn’t pay taxes on the premiums, then the benefits are taxable as ordinary income. If the employee paid part of the premiums, then a similar percentage of benefits will be tax-free.

Under the American Recovery and Reinvestment Act (ARRA), the monthly tax exclusion for employer-provided commuter highway vehicle transportation and transit pass benefits increased to $230, effective from March 2009 through December 2010. The Tax Relief and Job Creation Act of 2010 extended these benefit amounts through December 2011.

Employees may exclude from income $230 per month in transit benefits and $230 per month in parking benefits –– up to a maximum of $460 per month. Employees may receive benefits for commuter transportation and transit passes and benefits for parking during the same month; they are not mutually exclusive.

These qualified transportation fringe benefits are excluded from an employee’s gross income for income tax purposes and from an employee’s wages for payroll tax purposes.

Previously, there were two separate monthly exclusion amounts, one for transit passes and commuter highway transportation — such as commuter vans — and a different one for qualified parking. The exclusion amount for qualified parking was set at a higher rate. The new law makes all the exclusion amounts equal and sets them at the higher rate for qualified parking. ARRA provided the equal benefits through Dec. 31, 2010, and the Tax Relief and Job Creation Act of 2010 extended this provision through Dec. 31, 2011.

Soure: IRS.gov

2012 Flexible Spending Accounts Information

These accounts are sometimes called flexible spending arrangements. They are tax-advantaged accounts that let employees automatically deposit a specific amount of each paycheck into them. After funds accumulate, they can be used to pay for qualified medical expenses. These accounts are different from HSAs and HRAs in the respect that they are usually offered with traditional medical plans. They also differ from HSAs in the respect that the unused funds in the account may not be carried over to the next year. Debit cards or forms are used to access funds from the account if money is needed.

Flexible spending accounts allow account holders to contribute to the FSA for any costs that aren’t covered by insurance. Some examples of such expenses include coinsurance, copay amounts and deductibles. If a health insurance won’t cover a treatment or related health expense, FSA funds can be used to pay for it. The specified limits saw some changes from 2011 to 2012

Contribution Limits for 2012

It was decided that 2012 would be the last year for no limits on FSA contributions. While there may not be limits in place, plans must specify a maximum percentage of compensation to be contributed to the FSA or a maximum dollar amount. The changes from 2010 to 2011 included over-the-counter medicines being eliminated from coverage if they weren’t prescribed by a doctor. The year 2013 will likely see one of the biggest changes: FSA contribution limits of $2,500 annually with yearly inflation increases.

Health Savings Accounts

HSAs are medical savings accounts that also have tax advantages. Taxpayers who are enrolled in HSA-qualified health plans with high deductibles are able to obtain them. At the time of deposit, the funds contributed to these accounts are not subject to federal income tax. Any unused funds that remain in the account at the end of the year are carried over to the next year and added to further contribution amounts. Since contribution also change with these plans each year, it’s important to be aware of the changes. The changes from 2011 to 2012 include an increase in out-of-pocket HDHP maximums and HSA contribution limits. However, there are no changes with the HDHP required minimum deductibles.

HSA Contribution Limits

Family: $6,250
Individual: $3,100
Catch-Up Contributions: $1,000

The individual amount of $3,100 reflects an increase of $50 from 2011′s limit. The $6,250 limit for families is an increase of $100 from 2011. Catch-up contribution limits, which are for people over the age of 55, remain the same between 2011 and 2012.

HDHP Minimum Required Deductibles

Self: $1,200
Family: $2,400
HDHP Out-Of-Pocket Maximum – Family: $12,100
HDHP Out-Of-Pocket Maximum – Self: $6,050

The HDHP limit increased by $100 between 2011 and 2012 for singles and by $200 for families. Another change between 2011 and 2012 is eligibility of over-the-counter medicines. Insulin is the only OTC medicine approved for reimbursement in 2012 under a health FSA, HSA or HRA without a prescription. In addition to this, it was decided that the penalty of 10 percent for ineligible expenses paid for using HSA funds would increase to 20 percent in 2012.

Flexible Spending Account – Debit Cards and IRS Guidance

These procedures are set out in IRS Notice 2011-5. According to this guidance, after January 15, 2011, FSA and HRA debit cards may continue to be used to purchase OTC medicines or drugs at drug stores and pharmacies, at non-health care merchants that have pharmacies (such as grocery stores with a pharmacy), and at mail-order and Web-based vendors that sell prescription drugs, so long as all of the following conditions are met:

1. Prior to purchase-

a. the prescription for the OTC medicine or drug is presented (in any format) to the pharmacist,

b. the OTC medicine or drug is dispensed by the pharmacist in accordance with applicable law and regulations pertaining to the practice of the pharmacy, and

c. an Rx number is assigned.

2. The pharmacy or other vendor retains a record of the Rx number, the name of the purchaser (or the name of the person for whom the prescription applies) and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements.

3. All of these records are available to the employer or its agent upon request.

4. The debit card system will not accept a charge for an OTC medicine or drug unless an Rx number has been assigned.

5. All other requirements for use of debit cards associated with health plans are followed.

So long as the above procedures are followed, the debit card transaction will be considered fully substantiated at the time and point of sale.

OTC drug purchases made at other vendors that have health-care-related merchant codes (such as hospitals and physicians), and purchases made at “90% pharmacies” (pharmacies for which 90% or more of gross receipts in the prior taxable year were for tax-code-qualified medical expenses), are permitted under a less stringent set of requirements.

Important Information for using your Flexible Spending Account with Merchants that Sell OTC Drugs

Importantly, for other merchants that sell OTC drugs, but which are not covered in the notice (such as a grocery store or convenience store without a pharmacy), an FSA or HRA debit card cannot be used to purchase OTC drugs. Employees need to be aware of this limitation, as well as of the conditions that now must be met to use debit cards for any OTC medication purchases, to ensure that health plan-related debit cards are used properly.

Related to accident and health plans that are provided by employers, including FSAs and HRAs, The Patient Protection and Affordable Care Act (PPACA) revised the definition of medical expenses. The definition of qualified medical expenses for Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA) were also revised by PPACA. This will involve several changes for over-the-counter drug reimbursement, cafeteria plans, HRA and FSA debit card usage, etc..

Incurred expenses for non-prescription over-the-counter medications and drugs bought on or before December 31, 2010 can be reimbursed without taxes in accordance with the employee plan. However, as of January 1, 2011, an employer-provided health plan, such as an FSA or HRA, can only pay or reimburse the cost of drugs and medications under the following circumstances:

• The medication is insulin
• A prescription is required for the medication
• The individual acquires a prescription for a medication available without a prescription (over-the-counter medication.)

Note that a prescription is defined as a hand written or electronic medication order for a particular individual to have a particular medication or drug. It must abide state legal requirements and be composed by a healthcare professional that is legally authorized to issue prescriptions for the state it was written in.

HRAs and FSAs that use a debit card will also have new special rules. The IRS notice purports that current debit card systems are not capable of recognizing and maintaining that over-the-counter medications were in fact prescribed by a healthcare professional – as in compliance with the new definition of payable/reimbursable over-the-counter medication medical expenses. As a result, health HRA and FSA debit cards should not be used to buy over-the-counter drugs or medications after December 31, 2010. In an effort to smooth and facilitate the transition, the IRS will not be challenging FSA and HRA debit card usage for incurred expenses through the 15th of January in 2011. Thereafter, plans are required to ensure cards have been reprogrammed so that they can not be used in the purchase of over-the-counter drugs or medications.

Those with a health FSA should be careful, as some FSAs contain a grace period provision to allow use of unused funds not spent by December 31 of a given year to reimburse incurred expenses for the initial 2 ½ months of the subsequent year. Even if an individuals’ existing FSA includes this grace period provision, over-the-counter medications bought without a prescription (after the deadline) will not be eligible for reimbursement under the new rules outlined in the IRS notice.

Finally, cafeteria plans may also need revising to adhere to the new over-the-counter medication requirements. Despite the tenet against retroactive amendments, this notice allows an amendment to conform cafeteria plans to requirements adopted by June 30, 2011. For incurred expenses after January 1, 2011 or HRA and FSA debit purchases after January 15, 2011, the amendment may be retroactively effective.

Originally published October 12, 2010

Under the new law, maximum annual FSA contributions are reduced, and there are new regulations affecting how the funds can be used. The intent of the new rules and penalties is to generate revenue which can be used to fund aspects of the health care reform package.

FSAs and HSAs (assuming the employee is covered under a qualified high deductible health plan) allow an employee to contribute tax-free funds that can be used to pay for deductibles, drug co-pays, treatments that are not covered by health insurance, and other qualified medical expenses.

Annual Limits for Flexible Spending Accounts

Beginning on January 1, 2013, the annual limit for FSAs will be set at $2,500. Previously, the IRS (click here for more from the IRS) had stipulated that employers could establish their own FSA contribution limit, and according to the Center on Budget and Policy Priorities, these limits generally fell into the $2,000 to $5,000 range. In 2009, Mercer’s National Survey of Employer-Sponsored Health Plans stated that the average yearly employee contribution was $1,424.

Annual limits for HSAs, however, were not affected by the new legislation.

Be aware that some restrictions will become effective more quickly. For example, as of January 1, 2011, FSA and HSA participants will no longer be able to spend the funds on over-the-counter medications unless a physician has specifically prescribed them. Also starting next year, non-qualified withdrawals from HSAs will be subject to a 20% penalty instead of the 10% penalty which is currently applied.

Originally published November 12, 2010

Related to accident and health plans that are provided by employers, including FSAs and HRAs, The Patient Protection and Affordable Care Act (PPACA) revised the definition of medical expenses. The definition of qualified medical expenses for Archer Medical Savings Accounts (MSA) and Health Savings Accounts (HSA) were also revised by PPACA. This will involve several changes for over-the-counter drug reimbursement, cafeteria plans, HRA and FSA debit card usage, etc..

Incurred expenses for non-prescription over-the-counter medications and drugs bought on or before December 31, 2010 can be reimbursed without taxes in accordance with the employee plan. However, as of January 1, 2011, an employer-provided health plan, such as an FSA or HRA, can only pay or reimburse the cost of drugs and medications under the following circumstances:

• The medication is insulin
• A prescription is required for the medication
• The individual acquires a prescription for a medication available without a prescription (over-the-counter medication.)

Note that a prescription is defined as a hand written or electronic medication order for a particular individual to have a particular medication or drug. It must abide state legal requirements and be composed by a healthcare professional that is legally authorized to issue prescriptions for the state it was written in.

Health Reimbursement Arrangements and Flexible Spending Accounts with Debit Cards

HRAs and FSAs that use a debit card will also have new special rules. The IRS notice purports that current debit card systems are not capable of recognizing and maintaining that over-the-counter medications were in fact prescribed by a healthcare professional – as in compliance with the new definition of payable/reimbursable over-the-counter medication medical expenses. As a result, health HRA and FSA debit cards should not be used to buy over-the-counter drugs or medications after December 31, 2010. In an effort to smooth and facilitate the transition, the IRS will not be challenging FSA and HRA debit card usage for incurred expenses through the 15th of January in 2011. Thereafter, plans are required to ensure cards have been reprogrammed so that they can not be used in the purchase of over-the-counter drugs or medications. Click here for a list of eligible items as of January 1, 2011.

Those with a health FSA should be careful, as some FSAs contain a grace period provision to allow use of unused funds not spent by December 31 of a given year to reimburse incurred expenses for the initial 2 ½ months of the subsequent year. Even if an individuals’ existing FSA includes this grace period provision, over-the-counter medications bought without a prescription (after the deadline) will not be eligible for reimbursement under the new rules outlined in the IRS notice.

Finally, cafeteria plans may also need revising to adhere to the new over-the-counter medication requirements. Despite the tenet against retroactive amendments, this notice allows an amendment to conform cafeteria plans to requirements adopted by June 30, 2011. For incurred expenses after January 1, 2011 or HRA and FSA debit purchases after January 15, 2011, the amendment may be retroactively effective.

Originally published December 12, 2010.

Please note that in order to purchase breast pumps and related equipment with a benefits debit card at:

A pharmacy location – the pharmacy merchant must have modified their point of sale system to recognize these as eligible items during the check out process.  If that has not yet happened, the cardholder will have to make the purchase at a pharmacy that has made the update, or, pay out of pocket and submit a reimbursement request.

Other merchant location (e.g., medical equipment supplier)  – the benefits debit card will work as long as that merchant falls into one of the health care related categories allowed by the IRS.

Originally published on March 14, 2011.