FSA Employer Seeding For Some Not Others...

[Guest BeneGal]

FACTS:

300 Employees

Employer offers two health plans

The employer will pay $200 towards employee premium

The employee pays the difference

One plan costs more than the other

If employee elects the expensive one - all employers $ goes toward the premium

If employee elects the cheaper one there is about $80 left

QUESTION:

Can the employer set up just an FSA (medical and dependent care reimbursement accounts) which obviously allows employees to elect salary reductions for either category but at the same time seed the $80 into the accounts of only the employees who elect the cheaper medical insurance?

[GBurns]

Unless there will be employee contributions for medical expenses, why is the FSA needed?

[mroberts]

I'm guessing the $200 would only go to pay for single coverage. Thus the Section 125 plan would allow employees to pay for dependent coverage on a pre-tax basis.

In answer to the original question, yes it can be done - either through a cafeteria plan or the setting up of a Section 105 plan by the employer. Touch base with your flex plan administrator.

[Guest eafredel]

Benegal,

The design you are suggesting seems OK to me. If I interpret your post correctly, what you are saying is that the employer is willing to pay $200 for each employee. If the employee elects an expensive health option, all $200 will be used to pay the cost of the coverage. An employee who elects the lower cost health option will receive $120 for the health coverage and $80 in the form of an employer contribution to the FSA. All employees will be able to make pre-tax contributions for their share of the cost of health coverage and for medical and dependent FSA accounts. It may be a little cleaner and easier to explain if the $80 only is seeded into the medical FSA, but even if employees had a choice about using the $80 either for the medical or the dependent FSA, both options are made available to all eligible employees.

[Guest llerner]

The less rich/expensive plan funds could go into an HRA rather than FSA since it is 100% ER funded contribution. EEs could carry over if there are funds remaining, if I understand your post correctly.HRAs are designed to work with less rich plans which is primarily how they are utilized at this point. The HRA is another option for ER/EE unless employees will also add funds to the FSA. Or you could set up HRA for those EEs selecting the less expensive plan and an FSA for employee contributions to either one or both the DCAP and medical reimbursement accounts.HRA have the advantage of coming out of general assets and are easy to self administer by design If you do this through the FSA only you would need a trust funding arrangement for each account. FSA ER funds should only be applied to medical reimbusement since DCAR and medical can't be comingled.

Check with your broker/TPA.