HSA/FSA GRACE PERIOD

[Guest rickyc]

We have a client who offers three health insurance options to its employees, the newest one being a HDHP HSA. The other two options include a standard indemnity plan with deductibles and a PPO with co-pays. They also offer Health FSAs. Only 10% of their employees have elected the HSA option for 2007. The question is, must the employer convert ALL General FSAs to Limited-Purpose or Post-Deductible FSAs during the grace period REGARDLESS of the health insurance option the employee has elected? We have read the regs numerous times, but cannot clearly asertain if the language is addressing an employer who is offering only the HDHP HSA and no other health coverage option to its employees or if the language applies across the board even to those employers who offer multiple health plan options. If it is indeed across the board, it really appears it is penalizing those employees who do not elect the HSA option. Has anyone else run into this question or know where it is clarified in the regs?

[Jacmo]

I can't give you specific code quotes but it wouldn't make sense to require the banishment of all general health FSAs, which could be used with the other health options, just because another combo is available (limited purpose FSA/HDHP/HSA). Just because an employee elects the HSA option, should that mean that those who don't elect that option be punished?

That is not the spirit or intent of the law. In many years past, when guidance was lacking under 125, (not enough regs and/or no final regs), the general approach was that any decisions made should not benefit highly comped or key employees more than 50% of the time, or to a point that an anti-discrimination test would be failed.

In this case, keeping the general FSA option for use with the other health options would not likely violate that approach. Act in the best interests of the non-highly-comped employees until further guidance is available. You can adjust later if necessary.

[Guest rickyc]

I can't give you specific code quotes but it wouldn't make sense to require the banishment of all general health FSAs, which could be used with the other health options, just because another combo is available (limited purpose FSA/HDHP/HSA). Just because an employee elects the HSA option, should that mean that those who don't elect that option be punished?

That is not the spirit or intent of the law. In many years past, when guidance was lacking under 125, (not enough regs and/or no final regs), the general approach was that any decisions made should not benefit highly comped or key employees more than 50% of the time, or to a point that an anti-discrimination test would be failed.

In this case, keeping the general FSA option for use with the other health options would not likely violate that approach. Act in the best interests of the non-highly-comped employees until further guidance is available. You can adjust later if necessary.

[Guest rickyc]

Thanks for the response, Jacmo. That is our position as well, but I wanted to see if anyone had another take on this especially since the HSA regs are not always clear, are muddled, or don't necessarily follow common sense.