When an employee passes away, employers often face challenging questions regarding benefits and compensation. A common question that arises is whether an employer can pay a deceased employee’s unused Health Reimbursement Arrangement (HRA) balance to the surviving spouse. This article delves into the regulations and best practices surrounding HRAs in such scenarios, ensuring compliance and clarity.
HRAs and Their Restrictions
Health Reimbursement Arrangements (HRAs) are designed to reimburse employees for qualifying medical expenses, as outlined in Code § 213(d). Importantly, HRAs are not allowed to disburse cash payments to employees or their beneficiaries at any time, including after the employee’s death. Any attempt to convert HRA balances into cash would disqualify the HRA for all participants, rendering all reimbursed amounts taxable—even those for legitimate medical expenses.
The Concept of Post-Death Spend-Downs
While direct cash payments are prohibited, HRAs can include a provision known as a post-death “spend-down.” This feature allows the remaining HRA balance to be used to cover qualifying medical expenses for the deceased employee’s surviving spouse, tax dependents, and qualifying children. Employers should check their HRA plan documents to see if this feature is included and, if not, consider amending the plan to incorporate it.
Compliance and Nondiscrimination Rules
Amending an HRA plan to include a post-death spend-down feature must comply with several nondiscrimination rules. These rules ensure that benefits are not skewed in favor of highly compensated individuals. Specifically, all benefits provided to highly compensated participants must also be made available to all other participants.
Additionally, IRS Notice 2015-87 casts some uncertainty on whether family members without major medical coverage can utilize a post-death spend-down feature. Until further clarification from the IRS, a cautious approach would be to limit these reimbursements to family members who also have major medical coverage.
Administering Post-Death Spend-Downs
Proper administration of the post-death spend-down feature is crucial. Only qualifying medical expenses for eligible individuals should be reimbursed. Failure to adhere to this can result in all HRA reimbursements becoming taxable, not just those for ineligible expenses. Employers must also remember their obligations under COBRA. If a deceased employee’s death triggers a COBRA qualifying event, then qualified beneficiaries must be given the opportunity to continue their HRA coverage for the duration prescribed by COBRA, regardless of the presence of a post-death spend-down feature.
Conclusion
While it may seem compassionate to pay out a deceased employee’s unused HRA balance to their surviving spouse, doing so would jeopardize the tax-advantaged status of the HRA for all participants. Instead, employers should explore the option of a post-death spend-down feature, ensuring they comply with all relevant nondiscrimination rules and administrative guidelines. By carefully navigating these regulations, employers can support their employees’ families while maintaining the integrity of their HRA plans.
In a recent news release, the Internal Revenue Service (IRS) has reiterated important guidelines regarding the eligibility of health and wellness expenses for deductions and reimbursements under health Flexible Spending Arrangements (FSAs), Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Medical Savings Accounts (MSAs).
What Qualifies as a Medical Expense? According to the IRS, for an expense to be considered a medical expense under Code § 213, it must be directly related to the diagnosis, cure, mitigation, treatment, or prevention of disease, or must affect the structure or function of the body. This definition excludes expenses that are solely for general health benefits.
The Risk of Nonmedical Reimbursements: The IRS warns that if health FSAs or other account-based health plans reimburse nonmedical expenses, it could result in all plan payments, including those for legitimate medical expenses, being included in participants’ taxable income.
Misleading Claims and the Importance of Diagnosis-Specific Documentation: The IRS has expressed concerns about companies misleading individuals by suggesting that a doctor’s note can transform general food and wellness expenses into medical expenses. However, without a clear connection to a diagnosis-specific treatment or activity, these expenses do not qualify as medical expenses.
Case in Point: The Denied Claim Highlighting the issue, the IRS shared an instance where an individual with diabetes was denied reimbursement for healthy food expenses through his health FSA. Despite obtaining a doctor’s note from a company that advertised such services, the claim was rejected because the food did not meet the criteria for a medical expense.
Guidance for Taxpayers: For those seeking clarity on what constitutes a reimbursable medical expense, the IRS points to its FAQs on nutrition, wellness, and general health expenses. These resources clarify that food or beverages purchased for health reasons, such as weight loss, can only be reimbursed if they do not fulfill normal nutritional needs, are used to alleviate or treat an illness, and are substantiated by a physician’s prescription.
Understanding the fine line between general wellness and medical care is crucial for taxpayers and plan administrators. As the IRS emphasizes, only expenses that meet the stringent criteria set forth in the Code will be considered for deductions and reimbursements, ensuring the integrity of health-related financial plans.
LEAWOOD, Kansas – NueSynergy, Inc., one of the nation’s fastest growing employee benefits and billing administrators in the country, is pleased to announce its preferred partnership with Broker Builder Solutions (BBS), a national leader in support services for the benefits and technology industry.
“NueSynergy is an industry partner that reflects our shared commitment to solution-oriented strategies for benefits brokers and Human Resource professionals within the employee benefits sector,” said Tonya Taylor, Marketing Leader and Client Relationship Liaison at BBS. This alliance leverages both teams’ expertise to educate clients and effectively provide solutions to their benefits administration and technology challenges. Our shared foundation of outgoing and professional staff is crucial in delivering excellence to the industry and the companies we serve. Through this collaboration, BBS looks forward to expanding our network of trusted benefits professionals.”
NueSynergy continues to achieve exceptional business results with innovative products like its SpouseSaver Incentive Account and COBRAcare+ administration. NueSynergy will work with BBS to offer agents and agencies a wide variety of administrative services for their new and existing employer clients.
“After investing heavily in technology and expansion of our overall infrastructure, NueSynergy has concentrated on partnering with well-known benefits leaders as we continue to expand our nationwide presence,” said Josh Collins, President of NueSynergy. “As we continue to focus on industry-leading service and expanding administration solutions for employers, we have found Broker Builder Solutions to be a natural fit in helping us build new broker and client relationships.”
About NueSynergy NueSynergy is known for industry-leading service, innovative technology, and excellence in providing full-service administration of consumer-driven and traditional account-based plans to employers of all sizes and sectors. Headquartered in Leawood, Kansas, NueSynergy also has locations in Arizona, Florida, Idaho, North Carolina, Pennsylvania, Virginia, Washington, and Rzeszów, Poland.
NueSynergy offers a fully integrated suite of administration services, which include Health Savings Account (HSA), Health Reimbursement Arrangement (HRA), Flexible Spending Account (FSA), Lifestyle Savings Account (LSA), and COBRAcare+ administration as well as SpouseSaver Incentive Account, Combined Billing, Direct Billing, and Specialty Solutions. For more information, visit www.NueSynergy.com.
About Broker Builder Solutions Broker Builder Solutions is dedicated to assisting organizations with their benefits administration needs. Whether setting up a new benefits administration platform or maintaining/leveraging an existing platform, BBS can help. With over 15 years of benefit administration experience, the BBS team are experts in leveraging Ben Admin platforms to provide seamless implementations and carrier file transmissions. But their most important win is fostering positive and long-lasting relationships with all organizations across the benefits industry ecosystem.
BBS has expertise in Client Implementation, 834 EDI File Implementation, Carrier and Payroll Integrations, Eligibility Maintenance Support, ACA Reporting, and Data Migration support for cross platform transitions. For more information, visit www.brokerbuildersolutions.com.
A DOL, HHS, and IRS request for information (RFI) is seeking input about how the preventive health services mandate applies to over-the-counter (OTC) preventive items and services, including the potential benefits and costs of requiring plans and insurers to cover these items at no cost without a provider’s prescription. Agency guidance has previously advised that OTC items and services generally must be covered without cost-sharing only when prescribed by a provider.
The RFI seeks information on current access to and utilization of OTC preventive products, as well as operational challenges for plans, insurers, third-party administrators, and pharmacy benefit managers. For instance, the request asks about operational challenges that may be associated with using telepharmacies and mail orders within and across states or localities. The agencies are also interested in “lessons learned” from providing coverage for OTC COVID-19 diagnostic tests during the COVID-19 public health emergency. The RFI explains that the agencies are particularly focused on OTC preventive care items that can be purchased without a prescription now or in the future, such as contraceptives, tobacco-cessation products, folic acid during pregnancy, and breastfeeding supplies.
ORLANDO, Florida – EBenefitsHub is pleased to announce its addition of NueSynergy as an Exclusive National Core Partner. “We are excited to include the fully integrated suite of administration services assembled by Josh Collins, President, and the rest of the NueSynergy team over the past 27 years,” said EBenefitsHub Founder and CEO, Nick Gregory, ChWE. “NueSynergy has earned respect for its industry-leading service, innovative technology, and excellence in providing full-service administration of consumer-driven and traditional account-based plans among other solutions.”:
Flexible Spending Accounts, Health Reimbursement Arrangements, Health Savings Accounts, Lifestyle Spending Accounts, SpouseSaver Incentive Accounts, COBRAcare+ Administration, Premium Only Plans, Combined Billing, Direct Billing, and Private Label Solutions.
“NueSynergy continues to expand its national presence by offering a wide variety of forward-thinking, employer-centric products and services,” said Josh Collins, president of NueSynergy. “It’s important for us to work alongside an elite and diverse group of reputable companies to build solutions and long-term relationships for our mutual clients.”
With this announcement, NueSynergy joins a collection of exclusive, best-of-breed CorePartner organizations to provide services and products to BenefitsPros across the country. The result is the fusion of advanced knowledge, experience, services, technology, and products to create a synchronized hub for BenefitsPros and their business clients.
“We have engineered a modernized suite of snap-on digital solutions coupled with an arsenal of resources necessary for employee benefits providers to prevail within today’s competitively complex employee benefits landscape,” said Nick Gregory. “BenefitsPros can design and build their digital benefits hub . . . as they wish.
“With the help of NueSynergy and our other CorePartners, BenefitsPros can embrace the digital revolution, bridging the gaps while cutting away the bad plumbing of detached digital and manual processes . . . their way. They can neutralize competitors, expand client offerings, harvest more clients, and future-proof success. In a sea of sameness, BenefitsPros can brand, position, and differentiate to create an unfair advantage.”
About NueSynergy
NueSynergy, Inc., a privately held company, is one of the nation’s fastest growing employee benefits and billing administrators in the country. Headquartered in Leawood, Kansas, NueSynergy also has locations in Arizona, Florida, Idaho, North Carolina, Virginia, Washington, and Rzeszów, Poland.
NueSynergy offers a fully integrated suite of administration services, which include Health Savings Account (HSA), Health Reimbursement Arrangement (HRA), Flexible Spending Account (FSA), Lifestyle Savings Account (LSA), and COBRAcare+ administration as well as SpouseSaver Incentive Account, Combined Billing, Direct Billing, and Specialty Solutions. For more information, visit www.NueSynergy.com.
About EBenefitsHub
EBenefitsHub has engineered a modernized suite of snap-on digital solutions synchronized within its holistic EBHub Dashboard and “white label” All-In-One MobileFirst App. The EBHub “ecosystem” is coupled with an arsenal of resources necessary for benefits professionals to prevail within today’s competitively complex benefits landscape. BenefitsPros can design/build their digital benefits hubs . . . on their terms. With the help of EBHub CorePartners, BenefitsPros can embrace the digital revolution; bridging the gaps while cutting away the bad plumbing of detached digital and manual processes.
They can neutralize competitors, expand client offerings, harvest more clients and future-proof success. In a sea of sameness, BenefitsPros can brand, position and differentiate to create an unfair advantage. The result is seamlessly harmonized employee benefits, engagement and communications, merged into a powerfully holistic platform for BenefitsPros and their clients:
