Clients have many questions when first considering the benefits to establishing a Health FSA and Dependent Care Assistance Plan (DCAP). Here, Core Documents brings them all together for you.
Health FSA and Dependent Care Assistance Plan DCAP FSA
Frequently Asked Questions (FAQs):
What is a Flexible Spending Account (FSA)?
What are the advantages to offering such a plan?
What type of FSA plans does Core Documents offer?
What size employer groups can participate in an FSA?
Who can contribute to an FSA?
How much money can be contributed to an FSA?
Who controls the funds of the FSA?
Can employees change the amount of their FSA contribution during the year?
What expenses can be reimbursed from the Health Care FSA?
What happens if there is money left in the FSA at the end of the year?
Can FSA funds be used to pay medical insurance premiums?
Who owns the FSA?
How are employees reimbursed for eligible purchase?
What is automatic reimbursement?
What is an FSA debit card?
May an employer offer both automatic reimbursement and a debit card on the same FSA plan?
Can our employees obtain an online claim form to request reimbursement from the FSA plans when filing manual submissions?
How is an employer billed for FSA paid claims?
What happens if an FSA claim is paid for services received after the termination of an employee?
Who is eligible to participate in an FSA?
Do you offer Premium Only Plans (POP)?
May an employer offer both an HRA and FSA?
Can I offer both a Health Savings Account (HSA) and an FSA?
Can an employer purchase a stand-alone FSA?
Can my FSA be designed for just highly compensated or key employees?
How does an employer set up an FSA?
What is a Health Flexible Spending Account?
- An FSA provides a tax-advantaged way to pay for eligible out-of-pocket health care, dependent care, dental, vision and other eligible expenses. Authorized by Internal Revenue Code Section 125, an FSA allows your employees to pay for eligible expenses with “pre-tax” dollars, thereby lowering their taxable income.
What are the advantages to offering such a plan?
- An FSA allows you as an employer to provide a valued benefit to employees – especially as employers are increasing their employees cost with higher copays, deductibles, etc. It also saves you money by lowering your employees Social Security tax liability. Employers must pay 7.65% in Social Security taxes on employees’ pay, but employees’ Flexible Spending Account contributions are excluded from this tax. Many times the employer’s tax savings is greater than the cost to offer the Flexible Spending Account.
What type of FSA plans does Core Documents offer?
- Health Care FSA: With a Health Care FSA, your employees can pay for eligible health care expenses on a pre-tax basis, cutting costs by reducing their federal income tax, FICA tax and, as applicable, their state income taxes. Health Care FSAs cover an extensive list of eligible, reimbursable expenses, as defined by IRS Code Section 213(d).
- Dependent Care FSA: Many employees who have children under the age of 13 pay dependent care expenses. Your employees pay these expenses to ensure that during working hours, their children get the attention and care they need. For dependent care expenses, Dependent Care FSAs may provide more tax advantages than the federal income tax credit for your employees.
- Limited-Purpose FSA: If you offer one of our HSA-Compatible High-Deductible Health Plans paired with a Health Savings Account (HSA), you may offer only a Limited-Purpose FSA to those employees that have an HSA. The Limited-Purpose FSA is designed to complement the HSA and may be established to pay only for eligible vision and dental expenses. Medical expenses are not permitted, because the tax-favored HSA is used to fund those costs.
What size employer groups can participate in an FSA?
- Employer groups of any size (including current employees and their families) may participate in your FSA plans.
Who can contribute to an FSA?
- Employees contribute to FSAs by having money withheld from their paychecks on a pre-tax basis, and you as an employer do have the option of contributing.
How much money can be contributed to an FSA?
- Effective January 1, 2014 the Affordable Care Act limits Health FSA annual contributions to $2,500 that you and employees can contribute to Health Care FSAs. However, the employer’s FSA plan documents could specify a maximum dollar amount less than the new ACA imposed $2,500 annual limit. Each year, employees designate the amount of money they will contribute to the account in the following year up to $2,500. For Dependent Care FSAs, the maximum annual contribution is $5,000 ($2,500 if married filing taxes separately).
Who controls the funds of the FSA?
- Employees have their elected FSA contribution withheld from their paycheck each pay period. The employer then holds the funds until a claim is made by the employee. The employer reimburses the employee as claims are filed. For Health Care and Limited-Purpose FSAs, IRS rules specify that at any point during the year, regardless of how much has been withheld from their paychecks, employees can access the entire amount designated for the year. On a Dependent Care FSA, the funds have to be contributed before they can be used.
Can employees change the amount of their FSA contribution during the year?
- In general, no. Employees can only contribute the amount they originally designated for the year. However, the amount of an annual FSA contribution can be changed if there is a change in family status (e.g., birth or adoption of a child, divorce, death, change of address, see the SPD for more details) or in employment status.
What expenses can be reimbursed from the Health Care FSA?
- Employees are reimbursed for “qualified medical expenses.” Qualified medical expenses are defined by IRS Code Section 213(d) and are listed in IRS Publication 502, as long as those expenses are not otherwise paid by health insurance. A list of eligible expenses can be viewed at (included EBIA link here)
What happens if there is money left in the FSA at the end of the year?
- For years Health FSAs were subject to a use-it-or-lose it rule, however effective 10/31/2013 employers that offer FSA programs will have the option of allowing employees to roll over up to $500 of unused funds at the end of the plan year. Or, the employers has the choice to give employees a two-and-a-half month grace period immediately following the end of a plan year to use up funds for the year. Thus, if the plan year ends December 31, you may give your employees until March 15 to use their health FSA funds from the previous year. Only one of the two options can be chosen
Can FSA funds be used to pay medical insurance premiums?
- No, FSAs cannot be used to pay for medical insurance premiums.
Who owns the FSA?
- Employers retain ownership of the funds set aside for an FSA. Funds in the FSA are not portable with the employee.
How are employees reimbursed for eligible purchases?
- Employers may make reimbursement available by automatic reimbursement, debit card or manual claims submission.
What is automatic reimbursement using a debit card?
- This feature is available to clients who choose to outsource administration services to Core Administration. Automatic reimbursement is an optional feature on our Health Care and Limited-Purpose FSAs that submits the liability portion of an employee’s health care claim and automatically processes it against available FSA funds. If funds are available, a weekly reimbursement check is then sent to the member for their liability portion of the medical claim. Automatic reimbursement is one of the most important and desired features of our FSAs as it eliminates paper work for your employees. Employees can also choose to turn off automatic reimbursement and manually submit claim forms with receipts for reimbursement for Health Care and Limited-Purpose FSAs. For Dependent Care FSAs, employees are required to file a claim form for reimbursement.
What is an FSA debit card?
- This feature is available to clients who choose to outsource administration services to Core Administration. The debit card is an optional feature of the Health Care and Limited-Purpose FSA that gives an employee access to their FSA with convenience. The card can be used whenever an eligible expense is incurred at a qualified provider (such as an office visit or prescription at a pharmacy). With the debit card, funds are transferred from your employee’s FSA directly to the provider or merchant to pay for the expense through the MasterCard network. The card is authorized for use only at qualified merchants and health care providers that accept MasterCard and offer eligible products or services for reimbursement. For the Dependent Care FSA, employees simply keep receipts and then file a claim form for reimbursement.
May an employer offer both automatic reimbursement and a debit card on the same FSA plan?
- No, an employer has the option of offering either automatic reimbursement or a debit card for employee reimbursement out of the Health Care or Limited-Purpose FSA.
Can our employees obtain an online claim form to request reimbursement from the FSA plans when filing manual submissions?
- Yes, we provide reimbursement claim forms for all FSA plans.
How is an employer billed for FSA paid claims?
- Employers will designate a bank account for paid claims dollars for the initiation of a weekly ACH debit. You will be notified via fax or email of the week’s paid claims amount at least 24 hours before the ACH debit is initiated.
What happens if an FSA claim is paid for services received after the termination of an employee?
- If employee termination information is not received before the claim is paid, BlueCross BlueShield of Tennessee will debit the funds from the employer’s designated bank account as is the standard process. We advise to submit employee terminations to us as quickly as possible to prevent this situation. If you know the date your employee will terminate coverage, you can submit that information to us prior to the actual termination date. For groups that do not submit eligibility information through an electronic file feed (EDI), the fastest way to submit terminations is through our Web site using eNroll through BlueAccess. Most terminations can be processed within one (1) business day of receipt.
Who is eligible to participate in an FSA?
- Only employees are eligible to participate. Self-employed individuals, partners, and shareholder employees of a Subchapter S corporation who directly or indirectly own more than two percent of the company’s stock are ineligible to participate. A partnership, sole proprietor, or Subchapter S corporation may, however, offer a Section 125 plan to its employees.
Do you offer Premium Only Plans (POP)?
May an employer offer both an HRA and FSA?
- Yes, this is permitted. The HRA will pay first, unless the plan specifies that the FSA will pay prior to the HRA. If the HRA is written so that unused amounts carry over from year to year, the employer may want to have the HRA pay first to reduce the amount of the accumulation. One reason to have the FSA pay first is because unused FSA money does not carry over.
Can I offer both a Health Savings Account (HSA) and an FSA?
- Federal regulations prohibit employees from participating in both a Health Savings Account (HSA) and a traditional Health Care FSA concurrently. Employers may add a Limited-Purpose FSA for HSA-Compatible High-Deductible Health Plan (HDHP) participants, which limits FSA reimbursements to dental and vision expenses only. It is possible for you to offer a Health Care and a Limited-Purpose FSA if you offer both a PPO and HDHP plan to accommodate all employees.
Can an employer purchase a stand-alone FSA?
- Yes, at Core Documents you can just order a stand alone Health FSA fo just $129 for the Basic PDF, or $179 for the Deluxe Binder option with the PDF version.
Can my FSA be designed for just highly compensated or key employees?
- Pursuant to the Internal Revenue Code, FSAs cannot discriminate in favor of highly compensated or key employees. Under certain conditions, the non-discrimination requirements of a FSA may limit eligibility for participation. Non-discrimination testing forms are provided in every plan document package.
How does an employer set up an FSA?
Online Order Form