Self Administering an FSA

[Guest JPotosky]

I have a small client who is interested in self-administering a Flexible Spending Account. What would be the disadvantages to doing this?

[GBurns]

Yes.

An employer who self administers runs the risk of creating ill feelings with employees. There will be cases when a claim is denied and the employee will claim favoritism, bias or discrimination etc , alleging that someone else's claims should have been denied also or that someone else gets something that they should not have been given etc etc.

The savings (probably none) should not be enough to offset the danger of ill feelings etc.

There is also the risk of this discontent becoming a lawsuit or other legal issue. Using a TPA should remove this danger.

[maverick]

GBurns has a good point.

Also, you mentioned that this is a "small client." Is there someone there who has the expertise to decide which charges are eligible for reimbursement under an FSA? If not, who can they call for advice, and will there be a consulting fee?

[Guest JerseyGirl]

I see several major drawbacks in self-adminstration of an FSA, especially within a small organization, where everyone knows everyone else.

On the participants side of the coin you will have such issues as a co-worker-- or worse yet, the boss-- having knowledge of private details regarding medical conditions, treatment,etc... that you really didn't want to share; the perception of favoritism in claims adjudication; resentment that can be created by *thinking* something is a reimbursable expense, only to find out (after you've already had the procedure) that it is not; blaming the messenger when you lose unspent funds at year-end.

I can't imagine an employer realizing any substantial savings when compared to the additional load placed upon someone ( the HR person?) to track contributions, reimbursements, research eligibility of expenses, attempt to do in-house discrimination testing, and adjudicate claims-- all without any training or background in 125 plans, or particular knowledge of IRS regulations.

As a TPA, these are some of the burdens we remove from the shoulders of our clients. We sell a whole lot more than a document, we provide our expertise on a continuous basis, and keep our clients in compliance with the law. I would think that every client, regardless of size, would see the value of those services. We actually have a client with only 3 participants, but the owner appreciates the lack of problems he has to deal with by having a TPA.

[jsb]

And then there is HIPAA. Recommend your client find a good TPA.

[GBurns]

Yes and then there is HIPAA and COBRA.

You would not believe the confusion that I am seeing in the self-funded arena. I have seen 2 TPAs who demanded that the employer (the plan sponsor) must sign their (the TPA's Business Associates Agreement). Everything was held up until the lawyers finished laughing (mainly at how much to charge and whom). I have seen IPOs (Drs practice) refusing to submit claims to TPAs until they finished getting legal advice. There is 1 Claims Administrator who is holding EOBs until someone ensures that the employees will not let the EOB (PHI) get into wrong hands, one stated wrong hand is the FSA TPA.

[Guest David Thomas]

There is the possibility the small client has an FSA and fully-insured medical plan. The client could want to bring his FSA administration in-house to avoid having to comply with the HIPAA privacy rules (because the FSA would be seen as a fully self-adminstered medical plan with less than 50 participants and would therefore not be a covered entity).

[Guest jnaviaux]

DThomas is correct on the HIPAA issue and if they client chooses a good provider of a self-administered plan, one that includes full support; for nd testing, support claims adjudication, support the plan and document and provide a tracking software program for the plan they should be able to manage quite well. So I disagree with not doing it yourself. An opinion of course.

[Lisa Hand]

A number of good points have been made. One more needs to be considered in our litigious society.

HIPAA requirements and limits aside, the possible liability of having someone at the employer seeing the personal health information of the employees can create a legal nightmare for a small business owner. The ability to properly adjudicate claims aside, who actual adjudicates them? The boss? The boss' secretary? Their spouse? As mentioned, this would most likely have a chilling effect on participation with employees not wanting their employer to see this information. But it also has a more serious side. What is to protect the employer from a former employee claiming they were fired because of their personal medical information or a dependent's medical condition? The small business owner does not want to know John's wife has cancer or that Jane is taking the AIDS cocktail and if they do, they are leaving themselves wide open for this type of legal action.