HSA "trusts"

[jmor99]

A TPA is offering HSA claims adjudication as a service. The client employer writes it's checks (which include employee/employer contributions) directly to the TPA. The TPA deposits the money into an "HSA account".

All employers and employees monies are commingled in the HSA account. Is this type of account required to meet ERISA trust requirements?

[leevena]

Don't know why someone would want to pay a TPA for work not really needed. When putting together the plan, the employer needs a HDHP and a banking function. Most banks with HSA accounts will provide a check or debit card, and possibly interest bearing accounts. There is no legal requirement that the expenses be "adjudicated" by anyone, except for the enrolled individual who spends them. As a consequence, the employer is not responsible.

Could this TPA be talking about an HRA? With an HRA it is advisable to get an administrator to do this work.

[jmor99]

The employer is concerned about misuse of HSA money, so they are hiring the TPA to act as a "watchdog"

to perform the same function as FSA claims adjudication. (The employer is making significant contributions to the HSA). Furthermore, some of these employees have never had a checking account or credit card in their life and live paycheck to paycheck. The temptation will be high. I can understand the concerns and also understand that a TPA is not needed. My concern is being certain that the money is truly "trusted" which

WOULD be the case if deposits were made directly into the employees HSA accounts at a bank. But that's not what's happening here.

Thanks for your reply!

[leevena]

The concern about misuse is valid, but there is little the employer can do. Once the HSA dollars are allocated to the employee (weekly, monthly, etc.) the employer has no say in their use. The HSA dollars must be available to the individuals without proof of the claims legitimacy.

Based on your comments about the employer being concerned about his significant contributions to the HSA, it seems to me that an HRA would have been the better route to go with this group.

I wonder what would happen, legally, if the TPA denied a claim. If a "watchdog" TPA denied my claim, I would be all over it with a lawsuit, naming both the TPA and the employer.

[Don Levit]

I can appreciate your client's concerns about the use of HSA money.

He (or she) sounds like a very campssionate individual.

Have you seriously thought about a funded HRA?

Is there a way that, at termination, an employee could take any balances with him, as with an HSA?

Don Levit

[leevena]

The HRA rules are fairly clear about payout of funds for ex-enrollees. The funds cannot be paid out. An HRA can allow a retiree to continue with the fund if the plan was set-up for this and is reflected in the plan documents.

[Don Levit]

Right, Leveena, thanks for correcting me.

This seems loike a better solution than setting up an HSA.

The employer gets the deduction for funding the HRA, right?

And, the employer need not comply with the HDHP requirements associated with an HSA.

Don Levit

[leevena]

Yes, the HRA does appear to be a better alternative.

The employer has much more control over the expense side. The employer decides how many dollars to allocate to each enrollee and when they payment is made. For example, the employer could fund $1200 per year, and make it available on a monthly basis, $100 per month. If an employee incurrs a $500 expense in the first month and the fund has only $100, the employee will be reimbursed $100 per month for the next 4 months. Additionally, the employer can decide what expenses are covered. There are 3 options, the first being pay everything that the IRS deems as eligible. The second is to pay only expenses the underlying healthplan deems eligible, and the third is to customize as the employer see fit.

Deduction is taken only if the dollars are paid out. For example, if the employer has 20 employees and promises $1000 per year, the total exposure is $20,000. If the employeer pays out $12,000 in claims, then the employer can deduct the $12,000 only.

The employer does not have to pre-fund the account either. The employer could fund the account when the claim is presented for payment.

Yes, no requirement for a HDHP is needed. However, when you analyze the plans available, it may make sense to use a HDHP.

[Don Levit]

Leveena;

If the employer funds the HRA, and puts that money into a trust, is the contribution deductible at that point?

Don Levit

[leevena]

No. Deductibility is done for dollars spent, not placed into any type of trust or account. I have a few groups in HRA's and all of them are paying claims as they come due from their company accounts. There is no legal requirement that a trust be set-up or that a group "pre-fund" an account. Some administrators may require some kind of a pre-funding though. Depending on the group, and it's particular issues, it may be worthwhile for the group to pre-fund dollars into the HRA account. A group may keep a miniumum of 1 months expected claims in the account to ease it's administrative function.

[jmor99]

I totally forgot about the employer not being able to have a say so in the expenditures from the acount.

Their whole reasoning in going the HSA route was from the consumer driven health care standpoint. That is,

by having the HSA, the employee has an incentive to stay away from the doctor because it's their money now, not the employers. But now it looks like they're in deep stuff. Not only can the TPA NOT have a say so, but I suspect they're in violation of ERISA requirements when monies are separated from the employers general assets and placed in, of all places, the TPAs "HSA account". Won't it be neat, when some TPA claims processor decides to take off to Costa Rica or the Bahamas or Switzerland with just the click of a mouse.