Note: None of this should be taken as legal or tax advice.
Now that 2012 has become reality, figuring out employee health benefits can be a daunting task for both employers and employees.
With looming changes from health care reform and increased cost-shifting to employees,
defined contribution health benefits have emerged as the health benefit program of the future. According to leading experts,
2012 promises to be a huge year for defined contribution health benefits. That means any employer or employee considering health benefits in 2012 needs to consider the following.
In a
recent survey, McKinsey & Company spoke to a number of employers regarding major trends they see for 2012 and beyond. The following is a summary of those trends to help employers plan their health benefits strategy:
1) Cost-shifting brings companies closer to defined contribution health benefits
2) Health care reform encourages defined contribution health benefits
Health care reform, coupled with rising costs, has employers of all sizes concerned. According to McKinsey & Company, up to 60% of educated employers plan to "definitely" or "probably" pursue alternatives to offering health insurance such as:
- Dropping employer-sponsored coverage,
- Offering employee health benefits using a defined contribution model, or
- Offering health benefits only to certain employees.
Many carriers have added defined contribution health benefit programs to their product offerings, confirmation that defined contribution has become an increasingly important component of health benefit programs.
3) Technology and education are a big part of defined contribution health benefits
One of the primary changes to the health benefits landscape is the move toward more electronic communication, which means that employees will be required to educate themselves and enroll in their own health insurance plans.
Private health exchanges and individual health insurance quoting/enrollment technology are expected to be a large component of defined contribution health benefits.
With
less than 25% of small businesses expected to offer group health insurance by 2014, have you explored all possible alternatives?
Note: None of this should be taken as legal or tax advice.
If passed, the bill, effective January 1, 2013, would amend the Internal Revenue Code to allow unused amounts contributed to flexible spending arrangements to be paid back to the participants as taxable income after the close of a plan year. Currently, such unspent amounts must be forfeited by the employee due to the "use-it-or-lose-it rule".
What do you think?
Read below for the current text of
"H.R. 1004: Medical FSA Improvement Act of 2011".
|
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘Medical FSA Improvement Act of 2011’.
SEC. 2. ADDITION OF TAXABLE DISTRIBUTIONS.
(a) Treatment of Amounts Expended for Medical Care- Section 105 of the Internal Revenue Code of 1986 (relating to amounts received under accident and health plans) is amended by inserting at the end the following new subsection:
‘(k) Amounts Paid Under Medical Flexible Spending Arrangements-
‘(1) APPLICATION OF SUBSECTION (b) AND SECTION 106- For purposes of subsection (b) and section 106, a plan shall not fail to be treated as flexible spending arrangement solely because such plan, in addition to reimbursing expenses incurred for medical care (as defined in subsection (b)) during the plan year, distributes for the plan year all or a portion of the employee’s balance.
‘(2) LIMITATION- Paragraph (1) shall apply only in the case that the balance under such arrangement for a plan year is distributed after the close of the plan year to which the balance relates and not later than the end of the 7th month following the close of such plan year.
‘(3) TAX TREATMENT OF DISTRIBUTION- Any distribution to which paragraph (1) applies shall be treated as remuneration of the employee for employment for the taxable year in which it is distributed.
‘(4) FLEXIBLE SPENDING ARRANGEMENT- The term ‘flexible spending arrangement’ means a benefit program within the meaning of section 106(c)(2) (relating to long-term care benefits).’.
(b) Additional Deferred Compensation Exception- Paragraph (2) of section 125(d) of such Code (relating to deferred compensation under a cafeteria plan) is amended by inserting at the end the following new subparagraph:
‘(E) EXCEPTION FOR CERTAIN FLEXIBLE SPENDING ARRANGEMENTS- Subparagraph (A) shall not apply to a flexible spending arrangement (within the meaning of section 106(c)(2)) as a result of amounts being distributed to the covered employee in accordance with section 105(k).’.
(c) Conforming Amendment- Section 409A(d)(1) of such Code is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by adding at the end the following:
‘(C) a flexible spending arrangement which is subject to section 105(k).’.
(d) Effective Date- The amendments made by this section shall apply to plan years beginning after December 31, 2012.
(e) Transition Rules- In the case of plan years that begin before the date of the enactment of this Act, in implementing the amendments made by this section a flexible spending arrangement may allow an individual to make a new election or to revise an existing election under such arrangement so long as such new or revised election is made within 90 days after the date of the enactment of this Act.
|
Click here to track the bill on GovTrack.
A lot of new health benefits plans have become available to employers in the last few years. Many employers are particularly interested in MERPs or "Medical Expense Reimbursement Plans". I'm going to go over some basic information you might find interesting about MERPs, and then I'll talk a little bit about what interested employers can do to learn more.
First I should say that a MERP is the same thing as an HRA (Health Reimbursement Arrangement). Both terms can be used interchangably, but HRA seems to be the more common term.
So what is a MERP? Basically it's just a way for employers to give tax-free money to their employees which can only be used to pay medical expenses. Normally, employees pay for their own doctor visits, medicine, etc. and then the employer reimburses them. The employer can contribute exactly the amount they want so the cost of a MERP doesn't increase from year to year.
MERPs are incredibly flexible so it's very difficult to say exactly how they should be used. Most companies that administer these plans offer them either as a way to reduce the cost of group insurance or as a vision/dental plan. These are both great uses, but I think the most promising way to implement a MERP is as an all-inclusive health benefits platform. Let's go over how all three of these options work:
MERPS with Group insurance
I wrote an entire post about
how HRAs work with group health insurance plans. To summarize, you basically raise the deductible on the group plan and reimburse employees for the difference in the deductible. This effectively allows employers to self-insure a portion of their group insurance plan using pre-tax dollars which leads to big savings without any change in coverage.
MERPS for vision/dental
MERPS allow employers to only reimburse certain types of expenses. If an employer wants to offer a vision/dental plan without buying expensive insurance, they can offer a MERP to their employees that only reimburses for visions and/or dental expenses. This allows the employees to know that they're covered for basic expenses without costing the company absurd amounts of money on insurance premiums.
MERPS as stand-alone health benefits plans
Money from a MERP can be used to pay for individual insurance premiums. This means that rather than offering a group plan and a MERP, employers can just offer the MERP and employees can use that money to buy their own individual policies. This allows employers to offer great benefits without dealing with the sky-rocketing costs and constant headaches of insurance.
A lot of people have negative opinions about individual insurance, but those are generally based on misconceptions or horror stories from a decade ago. Individual insurance has come a long way recently and you can learn all about it by reading through the posts on this blog. In particular, look at
these posts about how your employees can find guaranteed insurance if they have preexisting conditions.
So now you know the basics about MERPs, but this obviously isn't enough information for you to decide if a MERP is right for your company. If you're interested in learning more, there are two sources you can go for more information.
Your first call should always be to a local insurance agent that you trust. Any knowledgeable agent will be able to help you understand how a MERP (or HRA) could work with your company.
If your insurance agent doesn't know much about these plans, you should try calling an HRA provider directly. Sorry about giving you such a blatant sales pitch, but when you're considering which HRA provider to use,
Zane Benefits should definitely be on your list.
If you have any questions about MERPs, please don't hesitate to let us know in the comments. You can also email me at
blog@ZaneBenefits.com and I'll try to write an entire blog post answering any questions you have.
