Month: October 2020

Compliance Trap: HSA & Spouse’s FSA

On By Michelle Turner, MBA, CEBSIn Cafeteria plans, eligibility, FSA, HSA9 Comments

Despite an employer’s best intentions, many entities don’t have processes in place to ensure that they are compliant with the IRS’s HSA rules. Others are not even aware of the compliance risks and find themselves in violation, which creates risks for both the company and their employees.

There are four main health savings account (HSA) compliance “traps” that I regularly find myself providing guidance on regarding HSAs, which fall into 4 main categories:

  • Disqualifying coverage – eligibility violations
  • Contribution issues – excess or ineligible contributions, failure to open an account
  • Cafeteria Plan Issues
  • Mistaken Contributions

All are equally problematic, however, for many employers open enrollment season is upon them and the one top of mind is disqualifying coverage, or what makes one ineligible for an HSA account.

According to the IRS, to be an eligible individual and qualify for an HSA, an individual must meet the following requirements:

  • Must be covered under an HDHP on the first day of the month
  • Cannot have disqualifying health coverage
  • Cannot be enrolled in Medicare
  • Cannot be claimed as a dependent on someone else’s tax return for the year

One of the most overlooked disqualifying coverages is a health flexible spending account (FSA) or a spouse’s health FSA (unless it is limited purpose or post-deductible).

The most common mistake I come across is when both spouses enroll in their own employer’s sponsored health coverage and one spouse elects a non-high deductible health plan (HDHP) plan with a general purpose health FSA and the other elects an HDHP plan and makes HSA contributions. Under the IRS tax rules, the health FSA could be used to reimburse qualified medical expenses on the employee, spouse or all dependents claimed on the employee’s tax return, therefore it is considered “disqualifying health coverage’ and it disrupts HSA eligibility. I often here, “but my spouse doesn’t spend their FSA $ on me”….that doesn’t matter. The FSA could be spent on the spouse, therefore, it disrupts HSA eligibility

For example:

  • Marcy and Charlie are married, Marcy is a full-time employee at Peanut’s Place and Scott is a full-time employee at Snoopy Hotel.
  • Marcy enrolls in single coverage PPO (e.g. non-HDHP) with Peanut’s Place and elects the health FSA.
  • Charlie enrolls in single coverage HDHP with Snoopy Hotel and wishes to enroll in the accompanying HSA but is ineligible. This is because Marcy has a health FSA (which is disqualifying coverage) and she is permitted to spend her health FSA dollars on her qualifying medical expenses, and those of her spouse and dependents.
  • Even if Marcy does not spend her health FSA dollars on Charlie, Charlie is still ineligible for Snoopy Hotel’s HSA.

It is important during open enrollment meetings that employers are providing education to employees and helping them be aware of this ‘trap’ so employees are enrolling in the health plan that works best for their situation and/or family.

This is Part 1 of HSA Compliance Traps. Be sure to follow my blog to learn about additional HSA Compliance Traps published later this year.




Affordable Care Act (ACA) Measurement Methods

On By Michelle Turner, MBA, CEBSIn ACA, eligibilityLeave a comment

The ACA has established rules on how to measure an employee’s hours to ensure an employee isn’t denied benefits based on a job title or classification of “part time” when in actuality they are working what the ACA considers full time (i.e. 30 hours a week or 130 hours a month). Part of these rules also includes when an employee must be offered benefits. 

Unfortunately, the measurement rules may be confusing, and often it’s easiest to understand the concept with an illustration (above). First, a few definitions:

  • Standard measurement period (SMP): a period of time (recommended is 12 months) for counting hours of service to determine full-time status for all ongoing employees
  • Ongoing employee: an employee who has been employed for at least one standard measurement period
  • Administrative period: allows time for enrollment and disenrollment, typically it’s 1 or 2 months
  • Standard Stability Period: when coverage must be provided if the employee averages full-time hours during the prior standard measurement period, this timeframe coincides with an employer’s plan year
  • Initial measurement period (IMP): lasts between three and 12 consecutive months, as chosen by the employer (we recommend 12), it begins on the first day of the calendar month following the employee’s start date
  • Initial stability period: when coverage must be provided if the employee averages full-time hours during their initial measurement period. If an employee does not average 30 hours/week during the IMP, the stability period cannot be more than one month longer than the IMP, typically this is the same length as the IMP

The above illustration is what these periods look like assuming a 1/1 plan year.

When an employee is hired as PT, their initial measurement period (IMP) starts the first day of the month after they were hired (e.g., date of hire 3/15/16, IMP starts 4/1/2016) and may last for up to 12 months (this diagram 11 months is used). During the IMP (e.g., 4/1/16 – 2/28/17) their hours are being tracked. At the end of the IMP (e.g., 2/28/2017), if the employee averaged 30 hours a week (or 130 hours a month) they must be offered benefits by the first day of their 13th month of employment which is the first date of their initial stability period (e.g., 5/1/2017). The employee also then must continue to be offered coverage for their entire initial stability period regardless of the number of hours they are working. 

These employees are also being measured during the SMP (e.g., 11/1/2016 – 10/31/2017) being used for all ongoing employees. If during the SMP they measure FT, the employee is eligible for benefits for the duration of the standard stability period (e.g., 1/1/2018 -12/31/2018), which means at the end of their IMP (e.g., 2/28/2017), benefits continue until the end of the standard stability period (12/31/2018). So, in the diagram above, on 4/30/2018 when the initial stability period ends, if from 11/1/16 – 10/31/17 (the standard measurement period) the employee measured full time, their benefits would continue until 12/31/2018. If, however, on 4/30/2018 the employee did not measure full time during the SMP (11/1/16 – 10/31/17) the employee would no longer be eligible for coverage. 

The other method that is available to use is the monthly measurement method, which means each month an employer determines whether an employee is/is not eligible for benefits based on the # of hours they worked the previous month and they would enroll/term accordingly monthly. Not a method that makes administrative sense for an hourly employee with fluctuating hours. 

Reference/Resource:

“The Five Ws, and One H of Affordable Care Act (ACA) Measurement Methods.” Alera Group, 23 Dec. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-affordable-care-act-aca-measurement-methods-102120/.

Required Annual Notices for Health & Welfare Plans & Electronic Disclosure

On By Michelle Turner, MBA, CEBSIn ERISALeave a comment

Q: We have a client with many factory workers who do not have computers for work but they do have a breakroom with computers that employees can access regularly. Does this satisfies the requirement for electronic distribution?

A: If an employer wishes to provide annual notices electronically, there is an electronic safe harbor for distribution of documents for individuals without regular work-related computer access. However, the employer would need to have these employees affirmatively consent to the electronic disclosure and provide an email address for delivery of the documents. The employee, prior to giving consent must have been provided information that explains:

·   the types of documents that will be provided electronically;

·   that consent can be withdrawn without charge;

·   the procedures for withdrawing consent and updating information (e.g., address for receiving electronic disclosure);

·   the right to request a paper version and whether a charge applies; and

·   the electronic delivery system and what hardware and software will be needed to use it.

Reference/Resources:

“The Five Ws, and One H of Required Annual Notices for Health & Welfare Plans.” Alera Group, 2 Oct. 2020, aleragroup.com/insights/the-five-ws-and-one-h-of-required-annual-notices-for-health-welfare-plans-100120/.