Tax Favored Health Plans Flex-Pay Payroll Services * 723 Coliseum Drive, Suite 200 * Winston-Salem, NC 27106 * info@fle

1. Tax Favored Health PlansFlex-Pay Payroll Services * 723 Coliseum Drive, Suite 200 *Winston-Salem, NC 27106 * info@flex-pay.com * (800) 457-2143

2. Types of Plans • POP - Premium Only Plan • HSA - Health Savings Accounts • FSA - Flexible Spending Arrangements • HRA – Health Reimbursement Arrangements

3. Benefits of All Plans • Employee • Pretax deduction for employee contributions Income, Social Security and Medicare taxes • Employer contributions are tax free • Medical reimbursements are not taxed

4. Benefits of All Plans • Employer • Tax savings on employee pretax deduction Social Security, Medicare, FUTA, SUI • Relatively low cost to provide a valuable employee benefit and costs may possibly be recouped through lower health insurance premiums

5. Premium Only Plan (POP) • Designated deductions are pretax, typically medical, dental, vision, etc. and HSA employee contributions • Low cost and easy to establish plan • No monthly fees to maintain plan • Saves EE and ER FICA, FUTA, SUI

6. Medical Savings Account FSA HSA HRA

7. Consumer Driven Health Plan • Theoretically, an employer can reduce health insurance expense to the company and the employee by a consumer driven health plan • A High Deductible Insurance Plan is a feature of a consumer driven health plan • A Medical Savings Account provides a method for the employee to fund the future costs of the higher deductible either with their own money or with EE and ER funds if the ER contributes

8. Health Savings Accounts (HSA) An HSA is a tax-exempt trust or custodial account that you set up with a qualified HSA trustee to pay or reimburse certain medical expenses you incur. A qualified trustee can be a bank, an insurance company, or anyone already approved by the IRS. Does not require a plan document

9. Benefits of HSA • Contributions by employer or by employee through cafeteria plan are excluded from income • Contributions carry over from year to year • Interest on the account is tax free • Distributions are tax free if used for qualified medical expenses • Portable – stays with employee, not employer owned

10. To Qualify for HSA • Must be covered under a High Deductible Health Plan (HDHP) • Not enrolled in Medicare • Can not be claimed as a dependent on someone else’s tax return • No other health coverage

11. Other allowed coverage • Specific disease or illness • Fixed amount per day of hospitalization • Accidents • Disability • Dental • Vision • Long-term care

12. HDHP • Higher deductible than typical health plans • Minimum annual deductible: indiv $1200, family $2,400 • Max on the sum of the annual deductible and out of pocket: indiv $5,950, family $11,900 • May provide preventive care at no or lower deductible (routine exams, prenatal, well-child care, screening ,etc.)

13. Maximum contributions (total EE and ER): individual $3,050 family $6,150 if EE is 55 or older, you can contribute an additional $1,000 HSA

14. W2 Reporting • Both the employee’s pretax contributions and the employer’s contributions must be reported in Box 12W of the employee’s W2. • This information is then recorded on Form 8889 with the individual’s 1040

15. Flexible Spending Arrangements (FSA) • An FSA allows employees to be reimbursed for medical expenses. • FSAs are usually funded through voluntary salary reduction agreements (125 deductions). • The employer may also contribute as a tax free fringe benefit. • Requires a plan document.

16. FSA Benefits/Risks • EE contributions are tax free • ER contributions are tax free • Withdrawals for qualified medical expenses are tax free • Benefit to EE, but risk to ER- employee can withdraw funds (medical only) in advance of their contributions. ER is at risk. • Risk to EE – unspent funds are forfeited annually (plans may have a grace period)

17. Plan design • No HDHP or any type of insurance plan is required • No IRS limit on medical FSA, but employer must set a limit in the plan (2013 IRS - $2,500) • IRS limit on dependent care FSA $5,000 • EE can not change election during the year unless there is a qualifying event

18. Types of Accounts • Medical • Dependent Care • Premium Reimbursement – individually owned policies covering health, dental, vision, Medicare B, LTD, STD and accident insurance. Beware of COBRA, HIPAA, ERISA and Medicare possible issues before adopting this. • Limited Scope (in conjunction with HSA) • Vision, dental, etc.

19. W2 Reporting • FSA EE or ER contributions are not reported on the W2 except child care FSA contributions are reported in Box 10 • The employee does not need to report FSA contributions on his 1040.

20. Health Reimbursement Arrangements (HRA) • HRA allows employees to be reimbursed for medical expenses • Why offer? consumer driven health plan • HRA must be funded solely be employer, no employee contributions allowed. • Requires a plan document

21. Benefits of HRA • ER contributions are tax free • Withdrawals for qualified medical expenses are tax free • Unused amounts can be carried forward for reimbursements in later years

22. Plan Design • No HDHP or any type of insurance plan is required • No IRS limit on ER contributions • Funds stay with employer upon employee termination

23. W2 Reporting • HRA ER contributions are not reported on the W2 • The employee does not need to report HRA contributions on his 1040.

24. Recent changes to Medical Savings Plans • For FSA and HRA, coverage and reimbursement is allowed for a child under age 27 at the end of the year • For FSA, HSA and HRA, over the counter medicine is not eligible for reimbursement unless there is a prescription written for it • Health Care Reform Act – W2 reporting of employer provided health plans was postponed until 2012. The IRS has not issued any guidance yet on this calculation.

25. Contact Kia Ramseur, Section 125 Manager, at Flex-Pay for additional information. (336) 714-1208 kia@flex-pay.com