Compliance FAQs

Until the amount of the improper payment is recovered, the debit card must be de-activated. The employer can demand that the employee repay the plan in an amount equal to the improper payment, and if the employee fails to repay the amount of the improper charge, the employer may withhold the improper charge from the employee's pay or compensation, to the full extent allowed by applicable law.

Only if they have incurred an allowed change of status event. Change of status events that would allow a participant to change their election mid-year include:

• Change in legal marital status
• Change in number of dependents
• Change in employment status
• Dependent satisfies or ceases to satisfy dependent eligibility requirements
• Residence change
• For adoption assistance provided through a cafeteria plan, the commencement or termination of an adoption proceeding

The IRS stipulates that the plan sponsor (employer) ensures that HRA, FSA, DCAP and Transit/Parking plans are properly substantiated. In other words, purchases made with the Choice Strategies Card must be proven to be eligible under the plan. Choice Strategies will issue requests for documentation that instructs employees to send the documentation necessary to substantiate the plan.

Transactions that cannot be substantiated generate a receipt request which is sent to the employee. Employees are requested to provide the necessary documentation (generally EOBs or provider statements) for substantiation. If transactions or claims are not substantiated or proven eligible, the benefit may become taxable to the employee.

Group health plans are not subject to non-discrimination rules at this time. However, this will be required under health care reform when more guidance is provided. An official effective date has not yet been determined.

FSAs are also governed by Code 213 (d) and allow for all qualified medical expenses with the exception of health insurance premiums, which are not eligible on an FSA. FSAs may be designed to reimburse all IRS eligible expenses, or whatever expenses the employer wishes to allow under their FSA plan.

Click here for a list of FSA Eligible Expenses

According to IRS guidance, there is currently no limit on how much an employee can contribute to their FSA besides what the company has already set as a maximum. Please click here for more information on FSA contributions.

For plans starting after the date of December 31^st 2012, the IRS has stated that there will be a maximum contribution amount of $2500 per employee. This means that even if the employee has dependents listed on their FSA, the total contribution amount can still only be $2500. If a husband and wife both are employed through companies that offer FSAs, they can then each have an FSA of $2500. Please click here for more information on the FSA contribution changes.

If an employer would like to set up a plan so that members can contribute unevenly to the total election over the plan year, it would be allowed as long as it is uniform for all participants of the plan. Please click here for more information in regards to the timing of FSA contributions and contributions in general.

FSA accounts can have a maximum grace period of up to 2 ½ months. The employer may choose to have a lesser amount of time for the grace period, but they may not choose to extend that time past the 2 ½ months as set by IRS guidance. Please click here for more information on the FSA grace period.  

Employers who are subject to COBRA must offer COBRA continuation of a member’s FSA account upon any qualifying event through the end of the current plan year. The sole exceptions: FSA with no remaining account balance, or FSAs where the member has spent more out of the account than they have contributed into the account. Please click here for more information on COBRA and how it applies to FSAs.

Medical Expenses:

Yes, although when submitting a claim, members must include the English translation for any foreign receipts. They must also convert the cost to a U.S. dollar amount. In order to determine the applicable U.S. dollar amount, members will need to use the currency exchange rate as of the date of the medical treatment.

Prescriptions:

Currently, it is illegal to purchase prescriptions from another country for use while in the US, and is not a covered expense. However, if members have received medical treatment in another country and were prescribed medicine in relation to their treatment while in that country, these prescriptions are reimbursable through the FSA account.

Members can receive reimbursement for mileage to and from medical appointments. For dates of service July 1st, 2011 or after, mileage can be reimbursed at $0.235/mile. For dates of service prior to July 1st, 2011, the mileage rate is $0.19/mile.

Members can submit a completed Claim Form with an Explanation of Benefits (EOB) or doctor's statement that indicates the date of service. Documentation indicating the mileage to and from the appointment will also be needed. This documentation can be in the form of a MapQuest or Google map print out (or similar equivalent) that lists the miles to and from the location.

Currently, there is no limit to how much an employer can contribute to an employer funded FSA. The employer funded FSA is not subject to the same $2500 restriction that will be in effect for employee funded FSAs beginning with the calendar year 2013.  

Please note:

Employer FSA contributions above $500 to an FSA that is solely funded by the employer are subject to the Public Health Services Act (PHSA) mandates (i.e. COBRA, HIPAA, etc.). 

Employer FSA contributions to an FSA that is also funded by the employee may not exceed two times the employee's salary reduction election under the health FSA for the year. If the contribution exceeds two times the employee's salary reduction it will also be subject to the Public Health Services Act (PHSA) mandates (i.e. COBRA, HIPAA, etc.).

An HRA may reimburse only qualified Code 213(d) medical expenses. Examples include co-payments, deductibles, co-insurance amounts, health insurance premiums, and medical expenses that are not covered by the employer's major medical plan.

Reimbursements made from the HRA are not included in an employee’s gross income and therefore does not need to be recorded for income and social security tax.  Please click here for more information on income tax exclusions for employees on HRA accounts.

Domestic partners are not eligible for an HRA on a tax free basis because of the Defense of Marriage Act (DOMA).  Employers may choose to allow domestic partners/same sex spouses to participate. If the employer chooses to allow domestic partners, they should enroll the domestic partner/spouse as the employee’s domestic partner/spouse on the enrollment form. It will be important to keep in mind that the actuarial value of the increased value of the HRA should be reported as taxable income to the employee.

 For example:

• Single adds domestic partner and receives an additional $1,000 in HRA benefits. The actuarial value (Cobra rate) is 35% of the HRA= $350. $350 should be reported as taxable income to the employee over the course of the year, regardless of reimbursements, etc.
• Two person HRA adds domestic partner, receiving $0 additionally (2person and family funding are the same)- increase in benefit is $0. No action taken.
• Two person adds domestic partner, increase in funding is $1000- actuarial value is 90%= $900 should be reported as taxable income to the employee.  

Medigap insurance is there to help supplement the health care costs that are not covered by Medicare when Medicare is the primary payer. The HRA is typically used before Medicare is primary. However, if they fund the HRA with under $1,000 or the group is under 20 employees, the HRA will be secondary and can be used to supplement any other health care costs that may not be covered by Medigap or Medicare.

Please click here form more information from CMS about Medigap coverage.

A DCA (referred to as DCAP by the IRS) can only reimburse dependent care expenses that allow the employee (and spouse, if applicable) to be gainfully employed. Please click here for a table of common eligible expenses for a DCA.

HSA contributions for qualified tax participants can be recorded as “above the line” deductions for tax purposes. Please click here for supporting documentation on HSA contributions and how they are recorded for tax purposes.

Partners of a partnership and more-than-2% shareholders in an S corporation can be eligible individuals to establish an HSA. An HSA established by these individuals may be funded (a) directly by the individual; or (b) by the partnership or S Corporation. If the individual funds their own HSA, the individual must do so on an after-tax basis and take a deduction on their income tax return.(They will not be able to fund the HSA on a pre-tax basis through a cafeteria plan.)

An HSA may also be funded by the partnership or S Corporation. However, if the HSA is funded in this way, special rules apply. IRS guidance describes these special rules in detail and provides examples of their application. There are differences in tax treatment depending on whether an HSA contribution is made by a partnership or an S corporation and depending on whether a partnership contribution is treated as a distribution of cash or as a guaranteed payment. But in all cases, the partner or shareholder on whose behalf an HSA contribution is made (assuming that the partner or shareholder is an eligible individual for HSA purposes) may make an above-the-line deduction from gross income in an amount equal to the HSA contribution (just as an eligible individual making an HSA contribution on his or her own behalf would be able to do).

The amount members can contribute into an HSA is not determined by the date the account is established, unless the member has maintained qualified HDHP coverage for less than 12 full months, in which case the maximum contribution is prorated by the number of full months of qualified HDHP coverage.

For example: 

John Doe joins an HSA-eligible health plan on June 1, 2009 and is HSA-eligible for seven (7) months. He contributes the maximum permitted of $5,950 for family coverage.  John then enrolls in his spouse’s plan on April 1, 2010.  His 2010 contribution must be prorated to 3/12ths of the maximum (based on the number of months he is HSA-eligible).  $6,150 / 12 months = $512.50 x 3 months eligible = $1,537.50. He must now review his 2009 contribution as he did not remain HSA-eligible through December 2010 as required by the “13 month testing period”.  His 2009 contribution is now limited to 7/12ths or $3,470.83. He must include $2,479.17 ($5,950 2009 contribution - $3,470.83 permitted maximum) as income + the 10% penalty on his personal tax return. 

To view the 2012 contribution and qualified HDHP limits, please click here.

Employers that have more than 20 employees are subject to COBRA requirements. Small employers of fewer than 20 employees are exempt. For more information on which employers are subject to COBRA, please click here.

An employer would have to abide by COBRA coverage rules in the plan year following when the crossover to over 20 employees was made.