Traditional Health Benefits

We’ve seen companies spend lots of money on rich benefit packages, but still have low employee appreciation. And we’ve seen companies who are more cost effective in their benefits offering, but receive lots of positive feedback from their employees. “Expensive” doesn’t always translate into “better”.

At RTC, we are passionate about helping businesses develop the right employee benefits package, not necessarily the most expensive. Above all else, we focus on educating our business about their options, capabilities, liabilities and opportunities in the marketplace. Helping our clients and their employees better understand their benefits is key to a successful benefits offering.

RTC can independently represent your company to build an employee benefits package which includes:

  • Medical
  • Dental
  • Vision
  • Life
  • Long and Short Term Disability
  • Voluntary Life

Depending on the needs of your business and employees, benefit offerings can be customized to meet your budget and coverage needs. No two businesses do it the same way, so we will take the necessary time at the beginning of the process to listen to your goals and objectives. After preparing a comprehensive proposal, RTC can advise you on your options. When we find the right fit, RTC will be here every day that follows to help serve you when you need it.

“Benefits agents all have access to the same products and the same pricing”
And for the most part, it’s true. Health Insurance benefits are not like other commercial insurance products, most agents have little to no impact over the rates during the quoting process and most agents have access to all the same products.

This means that it’s the agent you work with that makes the difference – not the product!

So, what makes RTC different?

Some of our clients say it’s our Services, where RTC clients receive customized communication materials, comprehensive employee enrollment meetings, and claims resolution assistance.

It could also be our extensive knowledge and understanding of the new Health Care law, the Affordable Care Act (ACA) and our dedication to helping employers comply with it.

Or perhaps it’s our intimate knowledge of Alternative Funding Arrangements, like HRAs, HSAs, and FSAs. (**link to HRA | HSA | FSA page) So intimate, in fact, that we even do the administration for some of these services in-house! (**link to TPA services, start link at the word “administration” and run to the end of the sentence.)

Actually, it’s all of these reasons. We invite you to contact us for more information about how we can demonstrate what sets us apart.

HRA | HSA | FSA

It may be hard to believe, but we love the technical details! Whether you’re considering offering an alternative funding option to your employees or just looking to brush up on your knowledge, you’ve come to the right place.

First, a little overview:

What is Consumer Driven Health Care (CDHC)?

Consumer Driven Health Care is a concept where employees enroll in a High Deductible Health Plan (HDHP) and are allowed to use a Health Reimbursement Arrangement (HRA), Health Savings Account (HSA), or Flexile Spending Account (FSA) to pay for eligible out of pocket healthcare expenses which are subject to their high deductible.

What is a High Deductible Health Plan (HDHP)?

This can refer to a major medical plan with a deductible of more than $1,300. To be HSA compatible the plan must meet federal HSA compatibility guidelines, such as all covered expenses, except certain routine wellness services, must be subject to the deductible before benefits are payable. Not all High Deductible Health Plans are HSA compatible.

About HRAs

What is a Health Reimbursement Arrangement (HRA)?

Under Section 105 of the Internal Revenue Code, employers are allowed to reimburse employees for certain eligible out of pocket healthcare expenses on a tax deductible basis. This “arrangement” is called a Health Reimbursement Arrangement or HRA. Some also refer to this as a “Wrap Plan”.

How does an HRA work?

(Below is ‘RTC Approach’, but there are many ways to structure an HRA plan and we know about them all!)

 

Step 1 – The employer decides how much money they would like to make available to each employee toward approved out of pocket health care expenses on an annual basis. Each eligible employee has access to the same dollar amount, though the employer may choose to offer more funds to employees with dependents on the plan.

Step 2 – Each employee receives a debit card, called a “Benny Card”, which is tied to a funding account that the employer can put money into. The employer will need to make a deposit to this account to get it started, but will then only make deposits to cover the employee’s actual incurred expenses on their Benny Cards each week.

Step 3 – Employees may use their Benny Card to pay for approved out of pocket healthcare expenses, up to their annual limit. Once the Benny Card has reached its limit, the employee will have to use their own funds to pay for expenses until the Benny Card balance is reset the following year.

Step 4 – Employers fund their employee’s purchases on a weekly basis. The Benny Card will only work at approved health facilities, so you can be sure the company’s money will not be spent on unapproved expenses. A Third Party Administration company will facilitate the administration of the Benny Cards and keep a close eye on their usage. Employers receive weekly reports with information about the Benny Card transactions from the prior week.

Step 5 – Employees are satisfied with having additional funds to pay for their expenses. Employers do not spend money not used by employees, resulting in lower overall costs and higher employee satisfaction.

The basic premise is that Employers can purchase a High Deductible Health Plan, which are often less expensive than lower deductible plan options, and use the savings to fund an HRA for their employees. Since it is often the case that many employees don’t use their health coverage at all during the year, employers don’t have to waste money by purchasing richer coverage that their employees may not use. Instead, employers can make funds available to employees who need it, through the HRA, but retain the unused funds of employees who don’t need it.

Most importantly, all employer contributions to the plan are 100% tax deductible to the employer, and tax-free to the employee! Employers have a lot of flexibility in determining what expenses are eligible under the HRA plan and what is not. HRAs provide a great tool to offer “Cadillac” benefits without the “Cadillac” price!

As always, RTC can help you decide if offering an HRA is the right option for your business.

About HSAs

What is a Health Savings Account (HSA)?

A health Savings Account (HSA) combines a High Deductible Health Plan (HDHP) with a tax-favored savings account for which employees can deposit their own money into through payroll deduction or after-tax deposits, which are eligible for deduction on their Federal Income Tax filing (HSAs are not recognized by the California FTB). This money can be used to help pay for out of pocket medical, dental, vision, and other IRS approved expenses throughout the year. Click here for more information about what expenses are approved by the IRS. (**hyper link the “Click here” to this link: http://www.irs.gov/pub/irs-pdf/p502.pdf )

Employers may also contribute money into the employee’s HSA account. All funds in this account earn interest and any unused funds are kept by the employee for future year’s expenses.

How does an HSA work?

Step 1 – Employer must purchase an “HSA Compatible” High Deductible Health Plan (Not all HDHPs are HSA Compatible). Employees must enroll in this HSA Compatible Health Plan to be eligible to open an HSA account.

Step 2 – Employees may open a Health Savings Account at the financial institution of their choosing. Alternatively, employers may wish to establish HSA accounts on behalf of their employees, if they plan to make contributions themselves, or allow their employees to make payroll deductions for HSA contributions.

Step 3 – Upon establishing an HSA account, employees will receive a debit card, which they can spend up to their available account balance (just like a regular checking account) to pay for out of pocket medical, dental, vision, and other approved expenses.

Step 4 – Employees will receive federal income tax deductions for any amounts they’ve contributed toward their HSA account throughout the year. If they made these contributions through pre-tax payroll deductions, then they’ve already received the tax deduction. If they made post-tax payroll deductions, then they’ll be eligible to deduct these contributions on their federal income tax filing.

What are the annual Contribution and Minimum deductible limits for HSA contributions and HSA Compatible Health Plans in 2016?

  • HSA holders can choose to save up to $3,350 for an individual and $6,750 for a family (HSA holders 55 and older get to save an extra $1,000 which means $4,350 for an individual and $7,750 for a family) – and these contributions are 100% tax deductible from gross income.
  • Minimum annual deductibles are $1,300 for self-only coverage or $2,600 for family coverage.
  • Annual out-of-pocket expenses (deductibles, copayments, and other amounts, but not premiums) cannot exceed $6,550 for self-only coverage and $13,100 for family coverage.
Minimum
Deductible
Maximum
Out-of-Pocket
Contribution Limit 55+ Contribution
Single $1,300 $6,550 $3,350 $1000
Family $2,600 $13,100 $6,750 $ 1000

About FSAs

What is a Flexible Spending Account (FSA)?

Flexible Spending Accounts, a component of a “Cafeteria Plan” or “Section 125 Plan”, is a federal income tax provision which allows employees to put some of their own paycheck into a spending account to be used for out of pocket health care costs or dependent day care program costs. Employees do not have to pay any taxes on the money they put into the FSA, but can only use these funds for qualified expenses (see IRS Publication 502 for additional guidance)

Use-it-or-lose-it Rule

Generally, if an employee does not use all the funds they have elected for the year by the end of the plan year (usually a calendar year), they will forfeit any unused funds. However, some employers may choose to allow up to $500 per year in rollover contributions or a 75 day grace period for employees to incur additional qualified expenses past the end of the plan year, to be able to spend down any unused funds. These additional allowances are allowed under the code, but are not required. Employers may choose to offer either provision or neither (but not both).

How does an FSA work?

Step 1 – First the employee must decide if they would like to elect to put funds into their “Health FSA” account, “Dependent Day Care” account, or both. Elections are made separately to each account type and have separate limits (see annual election limits below for more details).

Step 2 – At the beginning of the plan year, which usually starts on January 1st and runs through December 31st, employees will have the opportunity to make an annual “election”, where they formally specify the annual dollar amount they would like withheld from their paychecks. This annual amount is spread out evenly over each paycheck throughout the year and is deducted from their paychecks on a pre-tax basis and held in their FSA account on their behalf.

Step 3 – Employees make qualified purchases throughout the year, and as they do so, they may submit their receipts and receive a reimbursement from their FSA account.

For Health FSA accounts, employees may receive reimbursements for qualified expenses up to their full annual election amount as early as the first day of the plan year, regardless of how much the employee has actually contributed to the account.

For Dependent Day Care accounts, employees may only receive reimbursements for amounts up to their current contribution balance. For example, if an employee elected to withhold $100 per paycheck, after two pay periods, the employee could only seek reimbursements up to the account balance: $200.

This effectively reimburses the employee with tax free money, therefore saving an amount equal to what they would have paid in income taxes on those funds. If the employee is in a 15% tax bracket, they saved 15% on their qualified expense. It’s that simple!

What are the annual election limits for FSA accounts?

Employees and the Employer may contribute to an employee’s FSA account, but only the employee’s contributions must not exceed $2,550 in 2016 for Healthcare Expense reimbursement accounts. Employees may not contribute more than $5,000 in 2016 toward their Dependent Care reimbursement accounts ($2,500 for employees who are married but file separate returns). Employers may chose to contribute funds to these accounts as well, and the employer’s additional contribution does not count against the employee’s contribution limit.

FSA Tips and Reminders!

  • Unless the Employer allows for a 75 day grace period or a rollover contribution of up to $500, an FSA plan is a use-it-or-lose-it plan, so be sure to make your annual elections wisely. It is always advised to be conservative when considering how much to contribute to your account each year and not elect more than you can spend down during the year.
  • FSA funds cannot be used to pay insurance premiums.
  • Be sure to review IRS Publication 502 for a complete list of approved expenses and a definition of a qualified dependent.
  • Healthcare Expense reimbursement funds can be used for immediate family members and certain medical, dental, vision and other health related expenses which may not be covered by your insurance plan.
  • FSA funds may be used for over-the-counter medications with a doctor’s written prescription.

Differences between HRAs, HSAs, and FSAs

Though all three “alternative funding options” are similar in that they provide employers and employees tax free or tax favored options to help pay for the employee’s out of pocket health care expenses which apply toward their High Deductible Health Plan (HDHP). This concept is also known as “Consumer Driven Health Care” (CDHC).

Let’s break down the differences in a side-by-side comparison chart:

HRA HSA FSA
Who owns the account and funds? Employer Employee Employee, except for funds forfeited at the end of the plan
Employees Can Contribute? No Yes Yes
Employers Can Contribute Yes Yes Yes
Contributions are Income Tax deductible? Yes, to employer only Yes (Federal Only) Yes
 Withdrawals for qualified expenses are tax free?  Yes  Yes  Yes
Annual Contribution limits?  No  Yes, See “About HSAs” for details  Yes, See “About FSAs” for details
Funds may rollover? Maybe, if employer allows it Yes Maybe, if employer allows it and limits apply. See “About FSAs” for details.