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Why use an HRA to fulfill the San Francisco HCSO?

Employers Save Money: If the funds are not used by employees the employer keeps the unused funds (instead of the City).

Employers Save Time: No manual calculations of earned expenditures. Payroll Systems calculates this for customers based upon payroll hours reported.

Employers Stay in Compliance: Employees receive reimbursements for medical expenses as mandated by the HCSO.

 

2012 Changes to the Health Care Security Ordinance (HCSO)

2012 Funding Rates
Employer Size	Rate
20-99	$1.46
100+	$2.20
*Non-profits with fewer than 50 employees are exempt

• Unused 2011 employee HRA balances carry over into 2012
• Contributions designated to the employee’s HRA remain available for a minimum of 24 months from the date of contribution
• Employees must receive a written summary
  of contributions within 15 days of allocating contributions
• Terminated employees have 90 days to submit claims for unused funds
• Terminated employees must be provided a written notice of account balances within 3 days of termination
• Employers that impose a surcharge on customers must report to OLSE the amounts collected and pay or designate an amount equivalent to the surcharge on employee health care
• Post the required 2012 Official OLSE Notice
• New administrative penalties
• Annual salary exemption is $84,051

 

Allowable Expenses Best Practices

Per the HCSO the definition of allowable health care services includes medical care, services, or goods that may qualify as tax deductible medical expenses under IRS code Section 213(d). We recommend employers include these allowable expenses in their HRA plan.  For a detailed list please refer to IRS Publication 502.

Reporting and Accurate Records

Employers are required to maintain accurate records of health care expenditures; proof of expenditures made each quarter, surcharge collected (if any) and allow the City’s Office of Labor Standards (OLSE) reasonable access to such records. OLSE is now required to impose administrative penalties upon employers that fail to make the required health care expenditures on behalf of their employees. The maximum penalty is $100 per employee per quarter that the expenditures were not made within 5 days of the quarterly due dates.

Coming Soon in January!

Webinar: Staying in compliance with the HCSO with an HRA

The webinar will review the changes for 2012, items awaiting further guidance, and how to avoid penalties.

Filed under: Legislative Updates, San Fransisco Health Care Security Ordinance | No Comments »

Karla Sanders, our Director of Client Benefits, explained that “There is a misconception that FSA balances are forfeited at the time of termination of employment and thus employees are not given the opportunity to elect COBRA continuation of their FSA plan.”

COBRA compliance can be difficult to administer in the simplest of circumstances and when you add FSA requirements to COBRA administration the potential for noncompliance increases.

Know your FSA COBRA obligations:
The first step is to determine if your FSA plan is an excepted benefit. If the FSA plan does not meet all of the excepted benefit criteria, COBRA must be offered for a full 18 months.

FSA plans are an excepted benefit if it meets all of the following conditions:

a) The Maximum Benefit Condition: the annual FSA election amount does not exceed 2 times the amount contributed by the employee. If the employer does not contribute to the FSA this requirement is met.

b) The Availability Condition: a health insurance plan was available to the FSA participant due to employment. This requirement is usually met if the employer has the same eligibility for the group health plan and the FSA plan and if enrollment in major medical plan is available each year.

c) The Premium Condition: the maximum COBRA premium equals or exceeds the maximum FSA benefit available for the plan year in which the qualifying event occurred. If the employer does not contribute to the FSA this requirement is met.

If the plan is an excepted benefit as determined above then:

a) COBRA is only offered for the remainder of the plan year (not 18 months)

b) COBRA is only offered if the account is underspent. An account is underspent if the FSA balance (annual election less claims) at time of termination is more than the required COBRA premiums.

Let’s do the math:
An employee makes an annual election of $2,400 ($200 per month) and terminates on October 31st. The employee has contributed $2000 to his/her FSA account and submitted claims of $1500. The account is underspent because the remaining annual limit of $900 ($2400 less $1500) is more than the maximum premium of $400 ($200 x 2 month) than can be charged the remaining of the year

*Employees don’t have to use COBRA for health coverage in order to use it for their flexible spending accounts.

What if an employee wishes to repay the overspent amount?
Occasionally upon termination an employee wishes to repay the overspent amount (and most employers would cheer at this!), however the employer should not accept the additional contributions, even if they are made voluntarily. Such a practice is a violation of the uniform coverage rule.

When are balances forfeited?
Upon termination employees can only access FSA funds for claims incurred prior to the termination date. If the employee does not elect COBRA then any balances are forfeited.

Note that any grace period that applies to health FSA participants will also apply to FSA COBRA participants at the end of a plan year.

Do not leave these compliance issues to just anyone. Our COBRA Compliance Experts can help ensure you are not alone in dealing with these issues.

Filed under: COBRA, Flexible Spending Accounts | 2 Comments »

City administrators across the nation are watching as the Health Care Security Ordinance (HCSO) transforms doing business and health care in San Francisco. With opinions rampant, here are some facts and history regarding the HCSO:

• February 2006 San Francisco Mayor Gavin Newsom created a Universal Healthcare Council to develop a plan to provide access to health care for San Francisco’s estimated 73,000 uninsured adults.
• July 2006 The Board of Supervisors unanimously passed the Health Care Security Ordinance. This ordinance calls for covered employers to make a health care expenditure for their covered employees and for the Department of Health to create a Health Access Program, now called Healthy San Francisco
• January 9, 2008 the Health Care Security Ordinance goes into effect
• October 2011 Supervisor Campos submits Ordinance revisions causing an outbreak of dissent between SF employers and the Board. Mayor Lee invites leaders from all sectors of the City to come together to reach a consensus.

With the Ordinance once again under scrutiny and pending revisions, many issues have come to light.

The Employer:

Many employers feel the HCSO places an unfair burden on their business by mandating an expense whether employees use the benefits or not.

Employers can choose to pay the mandatory amounts into Healthy San Francisco and in turn the employees receive basic health care at City sponsored clinics, or receive a Medical Reimbursement Account. Some Employers choose to make the funds that they would have paid into the City available to their employees via a Medical Reimbursement Account that the employer or a TPA  (Third Party Administrator) administers. Employer and TPA administered reimbursement accounts do not restrict the care provider only the type of expense. The advantage is that the employer cost is only the amount of employees’ claims and the employee advantage is a wide range of possible eligible expenses that are not dependent on point of service (as with the City’s clinics).

Neither the Healthy San Francisco nor a Medical/Health Reimbursement Arrangement are health insurance. They are a means of receiving a non taxable benefit that can only be spent on health costs.

Do the math (Contributing to the SFHCSO):

A restaurant with 80 employees working 80 hours per month (part time employees)

80 hours x fund rate of 1.37/hr = $109.60 per employee

80 employees x $109.60 = $8,768.00month or $105,216 per year

Each employee can either visit a City clinic for a health care concern (the clinics are only for SF Residents) or can spend that amount on medical/dental/vision expenses via a HRA/MRA

The Employee:

If the employer pays into Healthy San Francisco the employee must apply for Healthy San Francisco, be interviewed, prove identity and city residency, pay quarterly fees and point of service fees (on a sliding scale), and renew his/her application each year.
Alternatively, if the employer or TPA implements a Health Reimbursement Arrangement account the employee uses a debit card at point of sale or submits receipts for reimbursements.

The TPA:

As a TPA and Bay Area business, our President, Tony Bowden, says it best “We are committed to being part of the solution for SF employers and employees.” With an HRA the $105,216 from our example, is retained by the employer. The employer makes funds available  as  the employees submit claims. We provide the service of managing the HRA plan, reimbursements, debit cards, claim questions. An added benefit for our payroll clients is they do not have to submit long lists of employees and hours worked as this is integrated with payroll processing. Currently an HRA satisfies the HCSO requirement and provides employees with readily accessible funds for health care costs.

The HCSO:

This is not the first amendment proposed by the Board of Supervisors and it will most likely not be the last. However the proposed changes have some serious consequences for employers. Supervisor Campos’ proposed amendments mandate an availability of funds to employees, even after termination. The funds would have to be available for a minimum of 18month, but could go on indefinitely depending on usage. Employers must fund the accounts immediately, no accrual of the funds will be allowed. Mayor Lee called for a consensus and brought representatives from diverse sectors to comment. Again the Board of Supervisors will vote this week and then it will pass to Mayor Lee’s desk, where although he hasn’t said he will support or veto the amendment, the Mayoral election is looming and will be bound to influence the decision.

Contact Mayor Lee to voice your opinion on the HCSO: (415) 554-6141 – Email: mayoredwinlee@sfgov.org

Welcome to Payroll Systems first blog!

Filed under: Legislative Updates, San Fransisco Health Care Security Ordinance | 8 Comments »