As we move into later stages of the pandemic, it’s important to keep an eye on and review basic rules of compliance in order to avoid penalties.
In a recent webinar hosted by Sentinel Benefits, Jon Levis and Cat Torres unpacked plan rules and regulations as they relate to FSA, HRA and HSA plans.
We compiled a list key points and rules to keep track of as discussed in the webinar.
Flexible Spending Accounts (FSAs)
Benefit Elections are allowed when hired, during open enrollment or if a qualifying event should occur. Qualifying events include:
- Change in number of dependents (birth/adoption)
- Change in marital status (marriage/divorce)
- Change in employment status (hiring/termination of employee/spouse/dependent, must affect eligibility)
- Change in dependent status affecting eligibility (e.g., attains a certain age)
- Entitlement to Medicare/Medicaid (Health FSA only)
- Judgment, decree, court order relating to child’s medical coverage (e.g., QMCSO)
- Death of a spouse/dependent
- Change in cost (DCAP only – i.e. change providers, rate change, change in need for care because of spouse’s work schedule, child eligible for kindergarten early, etc.)
Manual Claims must include a signed claim form or online submission with the name of the service provider, the amount charged for service, a description of service including date of service, the name of individual that received service and a Tax ID # of the service provider (for Dependent Care claims).
Debit Card Claims are auto-substantiated with no receipt based on co-pay matching and point-of-sale substantiation through credit card processing terminal. The receipt must be requested if auto-substantiation not satisfied, and if the claim is found to be ineligible, repayment is required.
Health FSA may cover medical/dental/vision expenses incurred by the employee, a spouse (if legally married), children through age 26 (includes children, stepchildren and adopted/foster children), and/or other qualifying relatives that meet certain income, residency and support requirements.
Eligible expenses include amounts paid for the diagnosis, cure, mitigation, treatment or prevention of disease, as well as treatments affecting any part or function of the body and over-the-counter (OTC) drugs and medications. Expenses incurred for general health (e.g. vitamins) or cosmetic reasons are generally not eligible.
- Uniform coverage rule: full election amount available
- Annual maximum: $2,850
- Use-or-lose: unused funds forfeited with two exceptions: (1) Grace period of 2.5 months following plan year end; and (2) Carryover up to $570
For terminated employees, services must be incurred while actively employed in order to be eligible. The participant is COBRA-eligible and cannot be asked to return reimbursements in excess of contributions.
You must file a Form 5500 under ERISA if there are 100 participants or more at the beginning of the plan year and/or the plan is a funded plan. Use the Form 5500 version that represents the calendar year in which the plan year begins. It is due by the last day of the seventh month following the last day of the plan year.
Dependent Care FSAs
Dependent Care FSA may cover day care expenses for children under the age of 13 and/or a spouse/dependent who is physically or mentally incapable of self-care. However, education expenses and overnight camps are not eligible.
Eligible expenses include:
For terminated employees, services may be incurred after termination, but claims can only reimbursed up to contribution amount and the employee is not COBRA-eligible.
- Expenses incurred so that participant and spouse may work, look for work or go to school
- Day care and pre-school through pre-K
- After school care and day camps for school age children (Kindergarten through age 12)
- Care that can be provided by a business or individual (EIN or SSN required for claims)
Health Savings Accounts (HSAs)
- Annual maximum: $5,000 per household ($2,500 if married filing separately)
Individuals are eligible for HSA if enrolled in HDPD with no other non-HDPD coverage. Grace period and Health FSA may impact eligibility, but a Limited Purpose FSA does not impact HSA eligibility. Factors that make an individual ineligible for HSA contributions include:
An HSA may cover medical/dental/vision expenses incurred by the accountholder, their spouse (legally married) and tax dependents. However, expenses incurred for general health (e.g. vitamins) or cosmetic reasons are generally not eligible. Eligible expenses include:
- Being claimed as a dependent on someone else’s tax return
- Enrollment in non-HDHP
- Spouse’s enrollment in Health FSA
- Enrollment in any part of MediCare at age 65
- The amounts paid for diagnosis, cure, mitigation, treatment, or prevention of disease and for treatments affecting any part or function of the body, as well as over-the-counter (OTC) drugs and medications
- For a Limited Purpose FSA, only dental and vision expenses are eligible
Terminated employees retain their full account balance. Services may continue after termination and be transferred to a new employer or another custodian.
Health Reimbursement Arrangements (HRAs)
HRA may make benefits available to employees, former employees or retired employees. Eligibility depends on plan design and is typically tied to medical plan enrollment.
Expenses can be reimbursed for the covered individual and their spouse (legally married), children through age 26 (includes children, stepchildren and adopted/foster children) and tax dependents. Health care expenses can be reimbursed under Section 213(d).
Terminated employees are COBRA-eligible. You can bundle with medical plan COBRA coverage or offer it as a separate election.
You must file a Form 5500 under ERISA if there are 100 participants or more at the beginning of the plan year and/or the plan is a funded plan. Use the Form 5500 version that represents the calendar year in which the plan year begins. It’s due by the last day of the seventh month following the last day of the plan year.
To dive deeper into rules and regulations for compliance, you can find a recording of the webinar here or contact us.