The Patient Protection and Affordable Care Act (health care reform) limited the ability of health plans to cover over-the-counter (OTC) drugs, permitting reimbursement from flexible spending accounts (FSAs) and health reimbursement accounts (HRAs) beginning January 1, 2011, only when OTC drugs are purchased with a prescription. In a departure from guidance issued last fall, the Internal Revenue Service has announced that debit cards linked to FSAs and HRAs can continue to be used to pay for prescribed OTC drugs, so long as certain procedures are followed.

These procedures are set out in IRS Notice 2011-5. According to this guidance, after January 15, 2011, FSA and HRA debit cards may continue to be used to purchase OTC medicines or drugs at drug stores and pharmacies, at non-health care merchants that have pharmacies (such as grocery stores with a pharmacy), and at mail-order and Web-based vendors that sell prescription drugs, so long as all of the following conditions are met:

1. Prior to purchase-

a. the prescription for the OTC medicine or drug is presented (in any format) to the pharmacist,

b. the OTC medicine or drug is dispensed by the pharmacist in accordance with applicable law and regulations pertaining to the practice of the pharmacy, and

c. an Rx number is assigned.

2. The pharmacy or other vendor retains a record of the Rx number, the name of the purchaser (or the name of the person for whom the prescription applies) and the date and amount of the purchase in a manner that meets IRS recordkeeping requirements.

3. All of these records are available to the employer or its agent upon request.

4. The debit card system will not accept a charge for an OTC medicine or drug unless an Rx number has been assigned.

5. All other requirements for use of debit cards associated with health plans are followed.

So long as the above procedures are followed, the debit card transaction will be considered fully substantiated at the time and point of sale.

OTC drug purchases made at other vendors that have health-care-related merchant codes (such as hospitals and physicians), and purchases made at “90% pharmacies” (pharmacies for which 90% or more of gross receipts in the prior taxable year were for tax-code-qualified medical expenses), are permitted under a less stringent set of requirements.

Importantly, for other merchants that sell OTC drugs, but which are not covered in the notice (such as a grocery store or convenience store without a pharmacy), an FSA or HRA debit card cannot be used to purchase OTC drugs. Employees need to be aware of this limitation, as well as of the conditions that now must be met to use debit cards for any OTC medication purchases, to ensure that health plan-related debit cards are used properly.

IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan as an employee benefit.  This plan allows for unreimbursed insurance expenses to be paid pre-tax.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

Cafeteria Plan – Another Feather in Your Benefits Cap Implementing a Section 125 Cafeteria Plan will strengthen your benefits program, save your company FICA taxes, and save participating employees 25% to 40% in taxes (depending on their income tax bracket).  What other benefits can you implement that strengthen your benefits package and you can do so with little or zero out-of-pocket dollars?

If your employees are paying any portion of the monthly insurance premiums, then to save FICA taxes, implement a Premium Only Plan (POP).  A POP allows for employees to pay their portion of the group insurance premiums on a pre-tax basis and is a good start to saving taxes for you and your employees.  You will save FICA taxes while saving your employee 17% to 40% on dollars they’re already paying.

With a POP there is no real ongoing administration as you’ll use payroll to take care of the dollar flow’s.  Discrimination testing is a requirement that will need to be performed at least once at the beginning of each plan year to ensure your plan is in compliance.

To take your pre-tax 125 plan to the next level means implementing the Flexible Spending Accounts (FSA).  Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent / Elder Daycare FSA.

These FSA accounts will allow for the unreimbursed out-of-pocket expenses to be paid on a pre-tax basis.  Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, and more.

These flexible spending accounts (FSA) are an easy way to supplement any gaps in your existing benefits program, save money for you and your employees, and is a great morale booster.

If you’re a small employer that doesn’t have a dental or vision plan because of costs.  Implementing the FSA will at least allow for your employees who have these types of out-of-pocket expenses to pay them on a pre-tax basis.  Wouldn’t it make your employees happy to be able to save 17% to 40% on a $5,000 orthodontic expense for a family member?  That would equal a $1,250 tax savings for an employee in the 25% tax bracket.

The FSA accounts are where the administration hassles of receiving claims, verifying claims as eligible expenses, answering employee questions, reimbursing claims, etc. are seen.  Which may lead you to consider outsourcing your ongoing administration through a qualified third party administrator.  If you’ve only got a few participants in the FSA in-house administration is something you can probably handle, but with monthly minimum administrative fees outsourcing is pretty economical.

Partnering with a qualified Cafeteria Plan Administrator such as BusinessPlans, Inc. will allow your employees to access their individual account information 24-hours a day, seven days a week from anywhere in the world.  As an employer, you also gain 24-hour Internet access.  You may query reports and check the status of your plan around the clock when you want and need your plan information.

Every organization has limits on the resources it has available for use.  Outsourcing will allow your company to focus and redirect its resources; most often people resources, from non-core activities to profit gaining activities.

Outsourcing with a Section 125 Plan Administrator vs. Administering In-house

You can make an argument for either outsourcing Cafeteria Plan Administration or administering internally.  I wanted to take a moment to discuss this very debate and shed light on why an employer should outsource with a qualified Section 125 Administrator.

Outsourcing has been a valuable strategic management tool for decades.  But in today’s highly competitive and ever widening global marketplace, more emphasis is being placed on the advantages that outsourcing can give an organization.

The driving force behind the decision to outsource is the ability to allow your organization to focus on what you do best: core competencies, delivering a quality product or service.  Outsourcing allows you to redirect focus to your revenue driven processes and not on back-office cost center functions.  Outsourcing will allow your organization to be more efficient, more effective, and reduce overall costs.

Outsourcing opens up the doors for your organization to gain access to top-level professionals in your non-core areas, state of the art technology, industry defined best practices, and stay up to date on compliance and legal updates.

Partnering with a qualified Section 125 Administrator such as BusinessPlans, Inc. will allow your employees to access their individual account information 24-hours a day, seven days a week from anywhere in the world.  As an employer, you also gain 24-hour Internet access.  You may query reports and check the status of your plan around the clock when you want and need information.

In essence, offering self-service to your employees gives them the feeling of control while at the same time reducing the company’s cost for personnel wages, technology, and supplies and boosting employee morale.  This is a win-win situation for you and your employees.

Under Section 125 of the IRS code, an employer may sponsor a plan for its employees which will allow them to pay for group health premiums, other qualified insurance premiums, unreimbursed medical costs, child and dependent care costs with tax-free dollars!

A Premium Only Plan (POP) allows for employees to pay their portion of the group insurance premium on a pre-tax basis and is a good start to saving taxes for you and your employees.  Implementing a Premium Only Plan is fairly easy.  Essentially, an employer needs to set up the plan with proper documentation, notify & educate employees, and perform non-discrimination testing.

There are restrictions by the IRS in who can sponsor and participate in a pre-tax 125 plan.

Any employer can sponsor a cafeteria plan for its employees, regardless of size.

Eligible employers include corporations (“Subchapter S” or “Subchapter C”), partnerships, non-profit organizations, government entities, limited liability companies (LLC), limited partnerships (LLP), and sole proprietorship.  Businesses that are under a controlled group may also sponsor a single plan for all of their employees.

Only employees of the sponsoring employer can participate in a cafeteria plan.  Examples of individuals that are NOT eligible to participate in a cafeteria plan include:

* Self-employed individuals (but they can sponsor a plan)
* Partners in a partnership (but the partnership can sponsor a plan)
* A more than 2% shareholder in a “Sub-chapter S” corporation
* An owner of a “Sub-chapter C” corporation can participate in the plan but is limited to only elect 25% of the total contributions in the plan.  For smaller companies this can be a very small amount.

A Section 125 Cafeteria Plan is a very broad benefit.  In simplest terms one may break down such a plan into three basic levels which include a Premium Only Plan (POP), Flexible Spending Accounts (FSA), and a full-blown Cafeteria Plan that uses “credits or benefit bucks” also referred to as a Consumer Driven Health Care (CDHC) or Defined Contribution Plan.

A Premium Only Plan (POP) allows for employees to pay their portion of the group insurance premium on a pre-tax basis and is a good start to saving taxes for you and your employees.

Taking your 125 plan to the next level includes implementing the Flexible Spending Accounts (FSA).  Generally, there are two FSA accounts including a Medical FSA (medical / dental / vision) and a Dependent Daycare FSA.  These FSA accounts will allow for the unreimbursed out-of-pocket expenses to be paid on a pre-tax basis.  Examples include dependent daycare, office co-pays, prescription co-pays, eye exams, eyeglasses, contacts, orthodontics, etc…

A full-blown Cafeteria Plan / Consumer Driven Health Care (CDHC) plan that utilized “credits or benefit bucks” simply allows the employer to provide employees with a limited number of employer sponsored credits, which the employee then decides where they’d like to apply these credits within the menu of benefit options within the company’s benefit program.  Employees may then supplement with their own dollars to buy additional benefits or increase levels of coverage.
Plan Document for your Section 125 Cafeteria PlanSection 125 Cafeteria Plan Document

Partnering with a qualified Section 125 Cafeteria plan administrator will provide an up-to-date plan document and set up.

For example, myCafeteriaPlan.com provides employers outsourcing their ongoing administration with:

* Up-to-date Plan Document
* Summary Plan Description (SPD) master copy
* Corporate Resolution
* Customized Forms (enrollment, change of status, termination)
* Legal Review
* Attorney Opinion Letter
* Discrimination Testing
* Signature-ready Form 5500, if needed
* Powerful and easy-to-understand employee education

Their documentation and plan set up incurs a one-time fee, as they do not have a yearly renewal fee.  Once an employer signs with myCafeteriaPlan, they will simply pay the ongoing cost of administration.  Ongoing administration is determined by the total number of participants, NOT accounts.  As the number of participants increase, the cost per participant will decrease.

Contact BPI at 800.865.6543 to discuss setting up your pre-tax 125 cafeteria plan today!

Employers may choose to administer an IRS allowed pre-tax flexible spending account cafeteria plan in-house or outsource with a cafeteria plan flexible spending account administrator or third party administrator (TPA).

Section 125 of the IRS code states an employer may implement a plan where in Flexible Spending Accounts a participant may submit unreimbursed insurance expenses on a pre-tax basis.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

Outsourcing with Flexible Spending Account Administrator vs. Administering In-house

Shed light on flexible spending account administratorsYou can make an argument for either outsourcing Cafeteria Plan Flexible Spending Account Administration or administering yourself, in-house.  I wanted to take a moment to discuss this very debate and like a lighthouse, shed light on why an employer should outsource with a qualified Cafeteria Plan Flexible Spending Account Administrator (TPA).

Outsourcing has been a valuable strategic management tool for decades.  But in today’s highly competitive and ever widening global marketplace, more emphasis is being placed on the advantages that outsourcing can give an organization.

The driving force behind the decision to outsource is the ability to allow your organization to focus on what you do best: core competencies, delivering a quality product or service.  Outsourcing allows you to redirect focus to your revenue driven processes and not on back-office cost center functions.  Outsourcing will allow your organization to be more efficient, more effective, and reduce overall costs.

Outsourcing opens up the doors for your organization to gain access to top-level professionals in your non-core areas, state of the art technology, industry defined best practices, and stay up to date on compliance and legal updates.

Partnering with a qualified Cafeteria Plan Administrator such as BusinessPlans, Inc. – myCafeteriaPlan.com will allow your employees to access their individual account information 24-hours a day, seven days a week from anywhere in the world.  As an employer, you also gain 24-hour Internet access.  You may query reports and check the status of your plan around the clock when you want and need information.

In essence, offering self-service to your employees gives them the feeling of control while at the same time reducing the company’s cost for personnel wages, technology, and supplies and boosting employee morale.  This is a win-win situation for the employer and employee.

Contact BPI today about outsourcing your flexible spending account (FSA) plan and choose between Traditional and Flex Debit Card administrative services.

A pre-tax 125 Cafeteria Plan in Ohio or elsewhere will save you FICA taxes, strengthen your benefits program, and save employees 17% to 40% in taxes (depending on their income tax bracket).  Plus, you can do so with little or zero out-of-pocket dollars.

IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan, which allows for unreimbursed insurance expenses to be paid pre-tax.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

You may choose to administer in-house or to ease your workload and comply with IRS regulations outsource your cafeteria plan administration.

• “S” or “C” Corporations
• Partnerships
• Non-Profit Organizations
• Government Entities
• Limited Liability Companies (LLC)
• Limited Partnerships (LLP)
• Sole Proprietorships

There are some IRS restrictions on who is eligible to participate in the plan, however. Only employees of the plan sponsor (company) can participate.Non-eligible individuals include:

• Self-Employed Individuals
• Partners
• A “More-Than-2%” Shareholder in an “S” Corporation
• Owners of “C” Corporations, unless they elect no more than 25% of total plan contributions
• Members of an LLC

Section 125 of the IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan, which allows for unreimbursed insurance expenses to be paid pre-tax.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

Employers may choose to administer such a plan in-house or outsource with a Cafeteria Plan Administrator.

Outsourcing through a Cafeteria Plan Administrator vs. Administering In-house

You can make an argument for either outsourcing Cafeteria Plan Administration or administering internally.  I wanted to take a moment to discuss this very debate and shed light on why an employer should outsource with a qualified Cafeteria Plan Administrator.

Outsourcing has been a valuable strategic management tool for decades.  But in today’s highly competitive and ever widening global marketplace, more emphasis is being placed on the advantages that outsourcing can give an organization.

The driving force behind the decision to outsource is the ability to allow your organization to focus on what you do best: core competencies, delivering a quality product or service.  Outsourcing allows you to redirect focus to your revenue driven processes and not on back-office cost center functions.  Outsourcing will allow your organization to be more efficient, more effective, and reduce overall costs.

Outsourcing opens up the doors for your organization to gain access to top-level professionals in your non-core areas, state of the art technology, industry defined best practices, and stay up to date on compliance and legal updates.

Partnering with a qualified Cafeteria Plan Administrator such as BusinessPlans, Inc. – myCafeteriaPlan.com will allow your employees to access their individual account information 24-hours a day, seven days a week from anywhere in the world.  As an employer, you also gain 24-hour Internet access.  You may query reports and check the status of your plan around the clock when you want and need information.

In essence, offering self-service to your employees gives them the feeling of control while at the same time reducing the company’s cost for personnel wages, technology, and supplies and boosting employee morale.  This is a win-win situation for the employer and employee.

There is also a wide range of additional benefits.  In a global economy rich with mergers, divestitures, and new business launches, outsourcing will help your company stay nimble to better manage business change.  Other indirect advantages of outsourcing include improving employee relations, increasing retention, decreasing turnover, reducing interviewing, hiring, and training costs. Did you know?

45% medium to large U.S. companies report that turnover costs them more than $10,000 per employee… and the average cost to recruit, hire and train a $50,000 a year employee is $18,750, according to survey in Workforce Magazine July 1998.

Every organization has limits on the resources it has available for use.  Outsourcing will allow your company to focus and redirect its resources; most often people resources, from non-core activities to profit gaining activities.

I’d like to discuss why you would look into cafeteria plan administration and more specifically focus on Cafeteria Plan Administration vs. Paying Employees Money Directly.  One can make an argument for either, but choosing Cafeteria Plan Administration has its advantages.

IRS code allows for employers to implement a pre-tax Section 125 Cafeteria Plan, which allows for unreimbursed insurance expenses to be paid pre-tax.  Examples include insurance premiums, doctors office co-pays, prescription co-pays, eye exams, eye glasses, contact lenses, laser eye surgery, orthodontics, and more…

Here are the facts:

• A Section 125 Cafeteria Plan is easy to implement
• You will be able to do so with little or zero out-of-pocket dollars
• It will save your company FICA taxes
• It’s an easy way for you to strengthen your benefits program and improve employee morale because it will save your employees 17% to 40% in taxes (depending on their income tax bracket)
• It’s a regulated benefit by the Internal Revenue Service (IRS)
• It will only allow for eligible medical, dental, vision, and daycare expenses to be run through the plan ensuring the plan is used properly.

If you were to simply add money onto an employees paycheck to cover such expenses, you don’t know how that money will be used.  For example, Bob could take his paycheck and stop by the local pub before heading home.  Truth be told, implementing the Section 125 Cafeteria Plan gives you control over these dollars to ensure they’re being used for out-of-pocket medical, dental, vision, and/or daycare expenses.

Note that you may implement a pre-tax 125 Cafeteria Plan and either administer in-house or outsource the ongoing administration.  If you’re looking for plan documentation or outsourced administration, contact BusinessPlans, Inc. by phone at 800.865.6543 or check out the myCafeteriaPlan.com