Employee's FSA claims are reimbursed when the employee provides the plan administrator with the following information:
- A written statement from an independent third party stating that the expense has been incurred and stating the amount of the expense, and
- A statement that the expense has not been reimbursed and is not reimbursable under any other health plan coverage.
- Direct access to pre-tax money in the FSA plan,
- No need to pay cash upfront and wait for reimbursement, and
- Reduced paperwork.
As a result, cardholders do not need to provide receipts to verify the eligibility of prescriptions or over-the-counter (OTC) items, making the process even easier for participants. The IRS still requires participants to retain their receipts for their records.
As of January 1, 2008, the IRS is requiring all supermarkets, discount stores, grocery stores, wholesale clubs and mail order merchants to implement IIAS. The FSA Debit Card will be declined at non-health merchants that are not IIAS certified. A list of certified IIAS merchants continues to grow and is available on our Web site. Traditional pharmacies have until January 1, 2009 to become IIAS certified; however, a number of them will be onboard by 1/1/08.
Tax Advantages with Health Care Flexible Spending Accounts
In addition to employee tax advantages, Health Care Flexible Spending Account programs provide significant employer tax benefits, as well. (While partnerships, sole proprietors and Sub-chapter S Corporations may sponsor cafeteria plans, the following cannot participate: sole proprietors, partners and greater than 2% shareholders in Sub-chapter S corporations. Also partners of LLPs or LLCs are not permitted to participate in a cafeteria plan.)Employer matching FICA taxes are reduced proportionally for every dollar employees contribute to their FSA. In some instances, this can create an opportunity to offer a benefit to employees for no cost. While the benefits of FICA savings and employee tax savings are clear, many plan sponsors are often concerned about their exposure as it pertains to the “Universal Coverage” rule.
Risk for Employers Who Offer Health Care Flexible Spending Accounts
The uniform coverage rule requires healthcare expense FSA plans to operate like insurance plans, rather than mere reimbursement accounts. This means that employers must make the full amount of coverage elected by a plan participant available to the employee from the start of the plan year, regardless of how much has been paid into the account up to that point. Employers may not deduct from employees' final paychecks premium payments that are due for the rest of the year as a method of minimizing their loss.While there is no mitigating the risk, in most instances the concern is unwarranted. In a 3 year study of an average of 236 plans covering over 15,000 plan participants 76% of the plans generated plan forfeitures to employers while only 21% experienced a "loss." (On average 3% of plans netted zero during the study period.) The average forfeiture to plan sponsors was $2,159 while the average loss was only $508.71.
Overall the FSA plan is one of the only employee benefits programs available that can provide such significant employee and employer tax savings at such a low cost.
Find out what a Health Care Flexible Spending Account (FSA) can do for your employees.
