Trying to decide which of the many employer-sponsored benefits out there to offer employees can leave an employer feeling lost in a confusing bowl of alphabet soup—HSA? FSA? DCAP? HRA? What does it mean if a benefit is “limited” or “post-deductible”? Which one is use-it-or-lose-it? Which one has a rollover? What are the limits on each benefit?—and so on.
While there are many details to cover for each of these benefit options, perhaps the first and most important question to answer is: which of these benefits is going to best suit the needs of both my business and my employees? In this article, we will cover the basic pros and cons of Flexible Spending Arrangements (FSA), Health Savings Accounts (HSA), and Health Reimbursement Arrangements (HRA) to help you better answer that question.
Flexible Spending Arrangements (FSA)
An FSA is an employer-sponsored and employer-owned benefit that allows employee participants to be reimbursed for certain expenses with amounts deducted from their salaries pre-tax. An FSA can include both the Health FSA that reimburses uncovered medical expenses and the Dependent Care FSA that reimburses for dependent expenses like day care and child care.
- Benefits can be funded entirely from employee salary reductions (ER contributions are an option)
- Participants have access to full annual elections on day 1 of the benefit (Health FSA only)
- Participants save on taxes by reducing their taxable income; employers save also by paying less in payroll taxes like FICA and FUTA
- An FSA allows participants to “give themselves a raise” by reducing the taxes on healthcare expenses they would have had anyway
- Employers risk losing money should an employee quit or leave the program prior to fully funding their FSA election
- Employees risk losing money should their healthcare expenses total less than their election (the infamous use-it-or-lose-it—though there are ways to mitigate this problem, such as the $500 rollover option)
- FSA elections are irrevocable after open enrollment; only a qualifying change of status event permits a change of election mid-year
- Only so much can be elected for an FSA. For 2018, Health FSAs are capped at $2,650, and Dependent Care Accounts are generally capped at $5,000
- FSA plans are almost always offered under a cafeteria plan; as such, they are subject to several non-discrimination rules and tests
Health Savings Accounts (HSA)
An HSA is an employee-owned account that allows participants to set aside funds to pay for the same expenses that are eligible under a Health FSA. Also like an FSA, these accounts can be offered under a cafeteria plan so that participants may fund their accounts through pre-tax salary reductions.
- HSAs are “triple-tax advantaged”—the contributions are tax free, the funds are not taxed if paid for eligible expenses, and any gains on the funds (interest, dividends) are also tax-free
- HSAs are portable, employee-owned, interest-bearing bank accounts; the account remains with the employees even if they leave the company
- Certain HSAs allow participants to invest a portion of the balance into mutual funds; any earnings on these investments are non-taxable
- Upon reaching retirement, participants can use any remaining HSA funds to pay for any expense without a tax penalty (though normal taxes are required for non-qualified expenses); also, retirees can use the funds tax-free to pay premiums on any supplemental Medicare coverage. This feature allows HSAs to operate as a secondary retirement fund
- There is no use-it-or-lose-it with HSAs; all funds employees contribute stay in their accounts and remain theirs in perpetuity. Also, participants may alter their deduction amounts at any time
- Like FSAs, employers can either allow the HSA to be entirely employee-funded, or they may choose to also make contributions to their employees’ HSA accounts
- Even though they are often offered under a cafeteria plan, HSAs do not carry the same non-discrimination requirements as an FSA. Moreover, there is less administrative burden for the employer as the employees carry the liability for their own accounts
- To open and contribute to an HSA, an employee must be covered by a qualifying high deductible health plan; moreover, they cannot be covered by any other health coverage (a spouse’s health insurance, an FSA (unless limited), or otherwise)
- Participants are limited to reimburse only what they have contributed—there is no “front-loading” like with an FSA
- Participant contributions to an HSA also have an annual limit. For 2018, that limit is $3,450 for an employee with single coverage and $6,900 for an employee with family coverage (participants over 55 can add an additional $1,000; also, remember there is no total account limit)
- Participation in an HSA precludes participation in any other benefit that provides health coverage. This means employees with an HSA cannot participate in either an FSA or an HRA. Employers can work around this by offering a special limited FSA or HRA that only reimburses dental and vision benefits, meets certain deductible requirements, or both
- HSAs are treated as bank accounts for legal purposes, so they are subject to many of the same laws that govern bank accounts, like the Patriot Act. Participants are often required to verify their identity to open an HSA, an administrative burden that does not apply to either an FSA or an HRA
Health Reimbursement Arrangements (HRA)
An HRA is an employer-owned and employer-sponsored account that, unlike FSAs and HSAs, is completely funded with employer monies. Employers can think of these accounts as their own supplemental health plans that they create for their employees
- HRAs are extremely flexible in terms of design and function; employers can essentially create the benefit to reimburse the specific expenses at the specific time and under the specific conditions that the employers want
- HRAs can be an excellent way to “soften the blow” of an increase in major medical insurance costs—employers can use an HRA to mitigate an increase in premiums, deductibles, or other out-of-pocket expenses
- HRAs can be simpler to administer than an FSA or even an HSA, provided that the plan design is simple and efficient: there are no payroll deductions to track, usually less reimbursements to process, and no individual participant elections to manage
- Small employers may qualify for a special type of HRA, a Qualified Small Employer HRA (or QSEHRA), that even allows participants to be reimbursed for their insurance premiums (special regulations apply)
- Funds can remain with the employer if someone terminates employment and have not submitted for reimbursement
- HRAs are entirely employer funded. No employee funds or salary reductions may be used to help pay for the benefit. Some employers may not have the funding to operate such a benefit
- HRAs are subject to the Affordable Care Act. As such, they must be “integrated” with major medical coverage if they provide any sort of health expense reimbursement and are also subject to several regulations
- HRAs are also subject to many of the same non-discrimination requirements as the Health FSA
- HRAs often go under-utilized; employers may pay an amount of administrative costs that is disproportionate to how much employees actually use the benefit
- Employers can often get “stuck in the weeds” with an overly complicated HRA plan design. Such designs create frustration on the part of the participants, the benefits administrator, and the employer
For help in determining which flexible benefit is right for your business, contact us!
by Blake London
Originally posted on ubabenefits.com
The guidelines for employers regarding who they can or cannot classify as a W-2 employee or a 1099 Contractor have seen some changes in past years, but the latest court ruling means some dramatic changes are going to be taking place as businesses come into compliance with the new standard. On April 30, 2018, the California Supreme Court passed down a ruling regarding the classification of W-2 employees and 1099 contractors which alters it yet again. So listen up, as this may impact your business!
Previously there was a lengthy multi-factor test that an employer would use to determine if they had classified all of their 1099 contractors correctly or if they needed to re-classify them as W-2 employees. Now the California Supreme Court is stating that employers need to use the ABC test.
The test established by the Court in California reads as follows:
“The [new] ABC test presumptively considers all workers to be employees, and permits workers to be classified as independent contractors only if the hiring business demonstrates that the worker in question satisfies each of three conditions: (a) that the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact; and (b) that the worker performs work that is outside the usual course of the hiring entity’s business; and (c) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.” – Dynamex Operations West, Inc. v. Superior Court of Los Angeles, No. S222732 (Cal. Sup. Ct. Apr. 30, 2018)
This new standard makes California’s policy regarding independent contractors one of the most restrictive in the United States.
Employers who traditionally hire employees for short periods to help them get through their busy season but pay them as 1099 contractors will no longer be able to do so. If you hire someone to perform the same work that your company already performs, even if it is for a shorter period of time, they will need to be hired and paid as any other W-2 employee.
This will mean increased costs for employers in many areas including, but not limited to, increased taxes through FICA, workers comp premiums, and in some cases health benefit premiums if the employees meet the eligibility criteria. However, even with the potential increase in costs, the penalty for non-compliance with the new 1099 employee test could be much higher.
By Elizabeth Kay
We have entered Open Enrollment season and that means you and everyone in your office are probably reading through enrollment guides and trying to decipher it all. As you begin your research into which plan to choose or even how much to contribute to your Health Savings Account (HSA), consider evaluating how you used your health plan last year. Looking backward can actually help you plan forward and make the most of your health care dollars for the coming year.
Forbes magazine gives the advice, “Think of Open Enrollment as your time to revisit your benefits to make sure you are taking full advantage of them.” First, look at how often you used health care services this year. Did you go to the doctor a lot? Did you begin a new prescription drug regimen? What procedures did you have done and what are their likelihood of needing to be done again this year? As you evaluate how you used your dollars last year, you can predict how your dollars may be spent next year and choose a plan that accommodates your spending.
Second, don’t assume your insurance coverage will be the same year after year. Your company may change providers or even what services they will cover with the same provider. You may also have better coverage on services and procedures that were previously not eligible for you. If you have choices on which plan to enroll in, make sure you are comparing each plan’s costs for premiums, deductibles, copays, and coinsurance for next year. Don’t make the mistake of choosing a plan based on how it was written in years prior.
Third, make sure you are taking full advantage of your company’s services. For instance, their preventative health benefits. Do they offer discounted gym memberships? What about weight-loss counseling services or surgery? How frequently can you visit the dentist for cleanings or the optometrist? Make sure you know what is covered and that you are using the services provided for you. Check to see if your company gives discounts on health insurance premiums for completing health surveys or wellness programs—even for wearing fitness trackers! Don’t leave money on the table by not being educated on what is offered.
Finally, look at your company’s policy choices for life insurance. Taking out a personal life insurance policy can be very costly but ones offered through your office are much more reasonable. Why? You reap the cost benefit of being a part of a group life policy. Again, look at how your family is expected to change this year—are you getting married or having a baby, or even going through a divorce? Consider changing your life insurance coverage to account for these life changes. Forbes says that “people entering or exiting your life is typically a good indicator that you may want to revisit your existing benefits.”
As you make choices for yourself and/or your family this Open Enrollment season, be sure to look at ALL the options available to you. Do your research. Take the time to understand your options—your HR department may even have a tool available to help you estimate the best health care plan for you and your dependents. And remember, looking backward on your past habits and expenses can be an important tool to help you plan forward for next year.
“Design thinking” is a fairly common term. Even if the phrase is new to you, it’s reasonably easy to intuit how it works: design thinking is a process for creative problem solving, utilizing creative tools like empathy and experimentation, often with a strong visual component. The term dates from 1968 and was first used in The Sciences of The Artificial, a text written by Nobel Laureate Herbert Simon.
For Simon, design thinking involved seven components, but today it’s usually distilled to five: empathize, define, ideate, prototype, test. In this way, creative tools are employed to serve individuals in a group, with a solution-driven focus. It’s important to note that these components are not necessarily sequential. Rather, they are specific modes, each with specific tools that contribute equally to solving an issue.
Most significantly, as Steve Boese of HR Executive noted in a recent column, design thinking is a rising trend in HR leadership. “Those using this strategy,” he says, “challenge existing assumptions and approaches to solving a problem, and ask questions to identify alternative solutions that might not be readily apparent.”Design thinking helps teams make decisions that include employees in meaningful ways, personalize target metrics, work outside the box, and produce concrete solutions. Even teams with established, productive structures use design thinking in the review process, or to test out expanded options.
Boese says that the key shift design thinking offers any team is the opportunity to troubleshoot solutions before they’re put into real-time practice. The main goal of design thinking is not process completion, low error rates, or output reports, as with other forms of HR technology, but employee satisfaction and engagement. More often than not, this leads to increased morale and even more opportunities for success.
by Bill Olson
Originally posted on ubabenefits.com