Employers generally opt for simplicity of complexity in the design of employee benefit. That preference is often reversed, however, when the complex yields tax advantages. And there are tax advantages aplenty to be had when stacking different types of accounts used to help employees cover health care expenses.
So said Sue Sieger, a senior compliance consultant for Employee Benefits Corp. during a BenefitsPRO Broker Expo workshop focusing on defined contributions in benefits planning. The session delved into a range of DC issues, including strategies for designing and implementing cafeteria plans, health reimbursement arrangements (HRAs), health savings accounts (HSAs) and flexible spending accounts.
As IRS rules and regulations respecting these accounts have grown more complex since passage of the 2010 Patient Protection and Affordable Care Act (PPACA), employees and benefits advisors are increasingly confronting rising compliance costs—but also opportunities. Employers can use benefits plans together in innovative ways to stretch their benefits budget.
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"You can either color inside the lines or outside the lines," said Sieger. "Whether we're talking about compliance, potential penalties or ways to stretch benefit dollars, employers just need to be sure they're aligning themselves with an educated advisor."
Consumer-directed FSAs, HRAs and HSAs come in a variety of types. Flexible spending accounts, for example, can be offered a general health FSA that reimburses IRC Section 2013(d) medical expenses. Alternatives include limited health savings account FSAs and post-HSA deductible health FSAs. Likewise, HRAs are available in general, limited and post HSA-deductible versions.
In respect to HSA plans, Sieger noted a discrepancy in laws: Minimum deductibles and maximum out-of-pocket based on health savings account tax rules don't square with the Affordable Care Act's limits. For example, the maximum HDHP maximum out-of-pocket limit to be compatible with HSA tax rules is $6,550, but the ACA limit is $6,850.
"This is another example of how [federal] agencies didn't get together to understand what the old rules when they were developing the new rules," said Sieger, adding that she's observed a similar disconnect in optional plan design limits for 2017 that become mandatory in 2018. "If [this discrepancy] in the federal rules stick, you won't have plan designs on the federal [PPACA] exchanges that will be compatible with HSAs, as out-of-pocket maximum limits will be too high.
"You need to remind your congressmen that work needs to done in this area to ensure that HSAs remain as a viable option in the future," said Sieger.
Turning to advanced plan design techniques, she noted that FSAs, HRAs and HSAs can be stacked together to yield tax benefits for both the employer and plan participants. For example, when pairing FSA with an HRA, the employee can set aside pre-tax dollars to cover the first $500 of a plan deductible; the employer can fund the balance of the deductible.
"There may be ways to design an HRA so that it partially self-funds some of the health care expenses," said Sieger. That a big benefit for the employee."
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