Handling HSAs and FSA through a Section 125

[Guest Speedbuggy]

We are a TPA and as we are beginning to plan with our groups for their next renewal, we have several groups that will be implementing an HSA and running the contributions through a Section 125. My question is, currently we have groups with Section 125 plans that include PO,DC, and Medical Reimbursment accounts. When they add the HSA to their plan, the only MR account those employees participating in the HSA/HDHP can use would be one that only allows reimbursement for dental, vision and possibly some preventive care claims. Question is, can we have a Section 125 plan with PO, DC, HSA. a MR-1 for those participating in the HDHP/HSA and then an additional MR account for other employees who are not participating in the HSA/HDHP and want to continue to use their MR for all eligible medical expenses under Section 213? Can we have a different eligibility requirement for each of the MR plans and still cover it under one Section 125 design, or must we have two separate plans, one PO,DC, HSA, and MR(dental,vision, etc). and another Section 125 plan with PO, DC, and MR for alleligible expenses?

Any thoughts or opinions on this question would be appreciated...or if anyone thinks of any pitfalls with this theory or potential risks?

[Guest JimD-EBR]

I'd recommend the two plan (or package) option - one with the HDHP/HSA/limited MR FSA and a second with the non-"HDHP/HSA" and an "unlimited" MR FSA. Communication, education and administration would appear to be clearer/cleaner using the two plan approach - and participant understanding will be key with HSAs as the benefits are intertwined.

Not sure of why you'd want different eligiblity - I'd go with the same eligibity on both plans - otherwise would seem to open up eligibility testing issues.

[Guest Speedbuggy]

Well, I probably wasn't really clear in what I meant by different eligibility...I was referring to the fact that anyone with the HDHP/HSA would not be eligile for the MR that allows all expenses...

Sorry for the confusion.

[GBurns]

Speedbuggy,

A section 125 plan is simply a device for allowing pre-taxing of contributions. It is not the DC, FSA, MR or any of the other plans. Technically a section 125 plan does not "include" anything but premium pre-taxing. It is simply a way of paying for whatever plans are chosen which are eligible to have their premiums pre-taxed under section 125. These "other" plans are really referenced rather than "included"

From what you have posted, I wonder what you would do if Cancer coverage was being made available? Would you now have an additional section 125 plan?

In most employee benefit plans there is a choice of medical coverage, and so the employee directs his/her section 125 election to whichever coverage was chosen. One employee might have chosen the HMO individual coverage, another the HMO Family coverage. while another the PPO individual coverage. The fact that there are multiple choices in the medical insurance coverage did not cause you to have a separate section 125 "package" for each possible choice. Why then would a choice of MR cause you to want separate packages? A single plan which is what is used by the vast majority has never caused communications problems, Why would it now, just because of the HSA/HDHP?

The situation you outlined is no different from what is faced by employees who have to choose between fully employer paid coverage and partiallly paid. They have the same scenarion of differences in co-pays and deductibles which in turn need different set aside in the MR.

I suggest that you look at the enrollment material used by any large entity in your area to see how multiple choices have usually been handled. Try the State, any large city or county, or a large School District. Their information is readily available under your state Public Records Law and easily accessible at their Benefits offices which are usually nearby.