Admit it: the word “flexible” has a nice ring to it. When you look at that job description or employee manual and see the turn “flexible spending account,” (also known as an FSA) you immediately and internally shriek with joy, because that automatically means freedom — freedom to pay for your health expenses without worrying about having the cash for copays and other deductibles.
Make no mistake — health insurance is costly. The FSA, though, is just one way to limit that cost and make it a lot easier on you as an employee. Undoubtedly, that makes you, the employer, that much more appealing to a prospective candidate —
There Are Some Things You Need to Know, Though, About the FSA
One would think it’s easy given the fact that not only does it benefit employees, but also the employer from a tax-saving standpoint. Your employee would be allowed to make an election available throughout the plan year, paying out of pocket for anything medical, dental and vision necessary. Think of it as something like a 401k, only for health insurance.
The tax benefit is obvious, too, not only from a company standpoint, but a candidate standpoint; employees aren’t subject to those federal and state income taxes — not even to FICA and Medicare. They, therefore, can use those pre-tax dollars to pay for all their health needs according to their insurance plans.
It is easy. Keep in mind, though, these important risks to the FSA:
First off, there’s the Uniform Coverage Rule you have to worry about. If by chance an employee hasn’t fully contributed to the election of the FSA, by law the company still has to reimburse that employee for the full amount. That means it could be the beginning of the year, and the employee has only brought in maybe $10 into the FSA, then the employee gets an eye exam, contact lenses and glasses with full reimbursement of maybe $520 due to the election.
It doesn’t seem fair; nor does it seem fair that an employee could simply resign at any time, and still the company’s responsible for reimbursement of the FSA.
In essence, it’s a gamble — a risk the company takes in good faith. It’s appealing to the employee, of course, but if the employee goes sour somehow, the corporation faces a potentially tremendous loss. It’s always a good idea for a company to take a good long hard look at the finances to ensure that they can shoulder a loss if necessary before even considering an FSA.
So Should I Set One Up? If So, How?
It could potentially be the best idea you had for your company. You follow protocol, though, in setting it up. There are detailed forms for you to fill out. However, support’s always available through a third-party administrator to set it all up for you; just watch out for privacy issues. Why? This is the health of the employee we’re talking about.
Generally speaking, issues about medical, health, dental and vision are extremely confidential. Passing information onto a third party, though, can potentially be a risk, as its a violation of HIPAA regulation.
The key to doing this right with a third-party administrator, though, is ensure the reputation of such an administrator. Make sure claims are appropriately handled in accordance with the law. Keep detailed and accurate records.
More importantly, accuracy issue is a big deal specifically with the IRS. All of that information has to be tracked somehow. You’ll need a Plan Document detailing everything from eligibility, timelines and reimbursement protocol. Do your homework beforehand, and the plan with facilitation by the third party will run all by itself.
More Importantly, There’s Healthcare Reform
It’s a changing landscape these days. That FSA, though, can keep you ahead of the game as long as it’s maintained by the outside agent observing the law as it switches here and there.
For instance: in 2011, the annual elections hit a “ceiling” now, which means employers must determine the amounts on their own. There was also a time when over-the-counter medications without a doctor’s note was an “allowable expense.” It’s no longer. These are changes in the law that all must be reviewed, not just by an effective business lawyer, but by a specialized FSA professional in the healthcare industry.
Again, Do the Homework….
Like I said, the program will run itself. FSAs can be quite beneficial to the employee and the employer if it’s done right, within legal parameters and with that all-important legal counsel overseeing all operations.
Obviously, the main benefit you should always remember, as an employer, is that your potential candidate will lick his or her lips when he or she sees the word “flexible.”
Matt Faustman is the CEO at UpCounsel. You can follow his business insights on Twitter at @upcounsel.