Blue Cross Blue Shield of Michigan

Employees save
25% to 40%

Enrollment System

Consumer-directed health accounts

Child dependent
care accounts

Elder care & adult day care accounts

Adoption assistance accounts

Commuter benefit accounts

Premium Only Plans

Advantages to Employers

Administrative Tools

Health Reimbursement Arrangement (HRA)
Flexible Spending Account (FSA)

Important Information Regarding HRAs

Who can sponsor an HRA? Regular corporations, partnerships, S corporations, limited liability companies (LLCs), sole proprietorships, professional corporations, and not-for-profits can all save money on taxes by establishing an HRA plan.

What about owners? While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the HRA plan, they may still sponsor a plan and benefit from the savings on payroll taxes. "Employee" shareholders of regular corporations may also participate.

Government Requirements:

	The plan must be in writing and a Summary Plan Description must be distributed to each plan participant.
	COBRA continuation forms must be provided to participants in the HRA who incur COBRA qualifying events.
	Insurance products with a return-of-premium feature cannot be paid for with HRA funds.
	The plan may not discriminate in favor of highly compensated employees.
	Employers are required to pay eligible health care expenses only to the extent of an individual's account balance.
	Generally, employers maintaining HRA plans that cover more than 100 participants must file an IRS Form 5500 each year.
	HRAs can be restricted to cover only certain benefits, like prescriptions, or co-pays and deductibles.
	Eligible expenses must be incurred during the participant's period of coverage, but may be paid at a future date. This is a plan design feature.
	The HRA cannot be "cashed out" upon an employee's termination or retirement.
	Plan design options are flexible. HRAs may be designed to either roll unused balances forward from one year to the next, or forfeit them to the employer at the end of the coverage period. The plan may, but is not required to, cover terminated or retired employees.

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Important Information Regarding FSAs

Entities that qualify. The following entities can save money on taxes by establishing an FSA plan: regular corporations, partnerships, S corporations, limited liability companies (LLCs), sole proprietorships, professional corporations, and not-for-profits.

What about owners? While regulations prohibit a sole proprietor, partner, members of an LLC (in most cases), or individuals owning more than 2% of an S corporation from participating in the FSA plan, they may still sponsor a plan and benefit from the savings on payroll taxes. "Employee" shareholders of regular corporations may also participate.

Government Requirements:

	The plan must be in writing and a Summary Plan Description must be distributed to each plan participant.
	Elections must be made prior to the beginning of the plan year and cannot be changed or revoked at any time during the plan year unless the participant has a change of status, or the required contributions to pay premiums for the elected benefits change during the plan year.
	COBRA continuation forms should be provided to all terminating participants in the medical reimbursement portion of the plan. However, COBRA need not be offered for subsequent plan years.
	If disability insurance is paid on a pre-tax basis, benefits received from the insurance carrier by the employee may be taxable. Under most circumstances, it is recommended that disability insurance not be included in the plan.
	No more than $50,000 of employer-sponsored group-term life insurance may be provided to employees on a pre-tax basis.
	Insurance products with a return-of-premium feature cannot be paid for on a pre-tax basis.
	The plan may not discriminate in favor of highly compensated or key employees.
	Generally, employers maintaining health FSA plans that cover more than 100 eligible employees must file an IRS Form 5500 each year.
	For a health FSA, the employer must make the full election amount available to participants on the first day of the plan. If an employee leaves employment before fully funding the plan, the company must complete funding. In case of a deficit in the plan account, the company must fund this deficit until employee deposits cover the balance. Generally, the employer’s FICA savings outweigh this risk. Click here to compare plans.
	Eligible expenses must be incurred during the plan year. Funds elected by participants, but unused at the end of the year, will be forfeited to the plan. Click here to compare plans.
	Because employees do not pay any social security tax on income redirected to the plan, their social security benefits may be slightly reduced.
	The plan must provide a written statement by January 31 of every calendar year showing the amounts paid or expenses incurred for day care expenses during the previous calendar year. This amount is shown on the employee's W-2.

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