Health Care FSA

What is a Health Care Flexible Spending Account?

Health Care Flexible Spending Accounts (HCFSAs), governed under Sections 125, 105, 213 and other sections of the IRC (Internal Revenue Code), allow participants to set aside pre-tax payroll dollars for the payment of a wide variety of healthcare expenses. Expenses eligible for reimbursement are listed in Section 213 of the IRC elsewhere on this site (click Login to login into your account, then click your FSA account, then download the PDF's under "Plan Information and Forms" for eligible daycare, health, or over-the-counter). HCFSAs have become increasingly accepted and popular over the last fifteen years and are now a common component in the benefit plans of most public and private organizations. Employees like HCFSAs because they help to increase the employee's spendable income. Furthermore, the cost of maintaining HCFSAs is usually more than compensated for by the FICA savings to the employer.

As FSAs Get More Complex; Should Employers Administer Internally or Outsource?

As HCFSAs have increased in popularity, so has the relative complexity of properly managing the administrative requirements associated with them. New requirements and user expectations have strongly fed the trend towards outsourcing FSA Administration. The requirements for privacy under HIPAA (Health Insurance Portability and Accountability Act of 1996) regulations, the increase in electronic data exchange between insurance plans and professional administration firms are mandatory requirement for an outsourcing provider. The demand for 24/7 web services and Interactive Voice Response systems (IVR), data security and archival needs as well as the growth of bank-debit cards as a mode of reimbursement have all contributed towards the outsourcing trend.

The Common Sense Behind Selecting a High Quality Vendor

Employers realize that FSAs are inexpensive to offer due to the employer FICA (Federal Income Contribution Act) tax savings component. A key reason for employers to consider a high quality vendor is that FSA administration, if you think about it, interacts with their employees and their spouses more directly than with any other benefit. With most health plans, the provider receives reimbursement directly from the health plan with no interaction from the employee. With healthcare FSAs, on the other hand, employees seek reimbursement directly from the FSA administrator. Thus, the quality of service received reflects directly on the employer and its philosophy towards employees. Participation in an FSA is generally most highly skewed towards highly compensated due to the fact that the tax benefits are both better understood and more significant for those with higher incomes.

It makes good financial sense too. If employees are treated well by the FSA administrator and participation in the FSA grows and remains strong, these plans actually run at a net financial gain, due to FICA tax savings to the employer. If participation is low, this is not necessarily the case. There are two variables to consider including the number of participants and the average annual election amount (the dollar amount set aside) per participant. The higher the confidence level in the plan, the higher the participation. Most employers conclude that it is strategically important to select a high-quality vendor, apt to reflect well upon the employer and keep the plan running at a net gain.

How to Find a High Quality Vendor

Benefits outsourcing is now utilized by nearly 90% of U.S. companies. It's no longer a matter of whether to outsource, but rather to whom. Yet selecting a vendor remains a daunting task for most benefit managers. How do decision-makers tell the difference between the truly excellent and mediocre performers in benefit administration? No vendor claims to be "mediocre," yet Benesyst takes over cases from mediocre and even poor performers every month.

How can an employer avoid these pitfalls? It takes lots of old-fashioned due diligence, pointed questions, and reference checking. If you know a demanding employer who is pleased with their administrator, that's a good start. An experienced professional benefits consultant or broker - one who has worked with a variety of vendors for many years - can be very helpful. Over time, these consultants and brokers come to find vendors which tend to please their clients the most.

Or you can contact Benesyst directly. We'll provide you with a questionnaire that you can include with your Request for Proposal. This, in addition to reference checks and on-site visits, can help you make your choice.