A. Our Approach
Let’s begin by acknowledging that medical accounts are subject to rules, and lots of them. We all grew up with rules, we know how to learn and follow them, and we never broke any. Here is an example of one of the rules we must learn about HSAs:
We promise this will make sense in time. But there are rules and there are truths, including whether and how employers can reasonably comply with the labyrinth of rules that apply to Medical Savings Accounts. We designed this tool to be a simple and practical way to find answers using expandable tables of contents, word searches, AI, and plain English. We’re going to take a middle road between mastery of the medical account rules and William Butler Yeats, who believed you only need to know this:
Wine comes in at the mouth
And love comes in at the eye;
That’s all we shall know for truth
Before we grow old and die.
On the middle road, we’ll organize the information by order of importance rather than look under every rock, though if you work through this material from top to bottom, you’ll develop considerable expertise. We will avoid legal jargon where possible, though after a while, some of the jargon we can’t avoid will become plain English to you. Regardless of how you use this module, we think that over time you will find it to be an invaluable resource if it’s your job to sort this stuff out.
B. Overview and Goals
Are HSAs, HRAs, health FSAs, and VEBAs medical savings accounts or medical spending accounts? The answer, of course, is “it depends.” Health flexible spending arrangements (FSAs) are subject to the “use-it-or-lose-it” rule, so they will always be medical spending accounts.[1] Health savings accounts (HSAs) provide greater tax benefits than any other form of retirement or savings plan, so they will always be medical savings accounts. According to Fidelity, a typical 65-year-old retired couple in 2023 faces an estimated $315,000 in healthcare costs during retirement even when taking Medicare into account,[2] so saving is imperative. But active employees have deductibles, copays, and coinsurance. Though uncommon in the public sector, annual out-of-pocket maximums for HSA plans may be as high as $7,500 for an individual and $15,000 for a family in 2023.[3] They may be higher for plans that are not designed to be offered with HSAs.[4]
Offering the right combination of medical accounts for savings and spending is critical to your workforce. Educating employees is equally important. There will be winners and losers simply based on medical need, but providing the right tools and support can create more winners. One goal is to help employees pay for medical bills on time and avoid medical debt; another goal is to help employees retiree with considerable savings in a VEBA, HSA, or both that may be used for medical expenses in retirement. We’re here to help.
Voluntary Employee Beneficiary Associations (VEBAs) and similar programs can boost retiree medical savings dramatically through the contribution of unused sick pay, vacation pay, and other longevity benefits upon termination of employment. Unfunded HRAs and FSAs play a role in balancing the peaks and valleys of medical care expenses for active employees. Choosing the right combination of medical savings and spending accounts, along with education on their use, can help you optimize conditions for best case scenarios across your workforce.
The goals of this module are as follows:
- We will help you understand IRS rules for all forms of medical accounts so you can counsel employees and help prevent mistakes that may result in tax penalties and other problems. Over the past several decades, we have advised employers, HSA custodians, VEBA administrators, and third party administrators of FSAs and HRAs. We’ll share color commentary based on the most common real-life issues.
- We will help you to avoid common pitfalls and problems, such as identifying programs or policies that might disqualify your employees from making HSA contributions.
- We will help you design personnel policies for medical accounts, including some that combine different types of medical accounts to (1) optimize retiree health savings, and (2) support active employees with out-of-pocket medical expenses. We include model personnel policies and collective bargaining agreement language.
- We will give you access to artificial intelligence (AI) that is trained not only on IRS and other federal agency guidance, but on our own experience solving real world problems. Our AI tools use only the data we feed it, so don’t ask them for fashion advice.[5]
- We will take you under the hood of the medical account industry, so you understand vendor contracts, fees, card arrangements, and the systems that make them work. Our goal is to aid in your professional development by providing the whole picture, so you can make meaningful contributions to the decision-making process when evaluating vendors.
- Lastly, we will try to keep the material light, simple, and fun. Can you really have fun with medical savings accounts, you ask? Yes, we respond. Employee benefits lawyers develop a sense of humor as they watch the law evolve.
Let’s begin.
[1] Health FSAs are typically funded by employees through salary reduction under a section 125 cafeteria plan. An employer may also juice these accounts with employer “flex credits” through a cafeteria plan.
[2] Fidelity 2023 Retiree Health Care Cost Estimate, news release here: https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c#_edn1.
[3] Revenue Procedure 2022-24.
[4] $9,100 for an individual and $18,200 for a family. Available at https://www.healthcare.gov/glossary/out-of-pocket-maximum-limit/#:~:text=For%20the%202024%20plan%20year,and%20%2418%2C200%20for%20a%20family.
[5] Responses from the AI are controlled by detailed “prompts” (rules we provide to help the AI respond properly) and we update our prompts regularly to improve their performance. It’s an ongoing process, but the underlying technology advances almost daily, and we expect the AI tools to add increased value over time.