The IRS recently announced that the annual contribution limit for flexible spending accounts will rise to $3,200 in 2024, up $150 from this year.
Also, employees will be able to carry over up to $640 next year into 2025 if they have funds left over in their account, if their employer allows it (it’s optional). That’s up $30 from this year. Anything above the limit at the end of the year is forfeited back to the employer.
The FSA announcement came unusually late this year, right in the middle of open enrollment, making it difficult for employers and employees to plan.
Earlier in 2023, the IRS also announced the maximum contribution limits to health savings accounts, which are similar to FSAs, but they must be attached to a high-deductible health plan. The annual limits on HSA contributions in 2024 are $3,850 for individuals and $8,300 for families, both up more than 7% from 2023’s limits.
FSA fast facts
Funds in an FSA can be used for a myriad of health care expenses, from dental and vision (including eyeglasses) to medical care costs and prescription and over-the-counter pharmaceuticals.
An FSA must be funded exclusively through employer contributions or employee pre-tax contributions, or a combination of the two. Employees are not taxed on withdrawals from their account.
At the end of the year unused funds in an FSA are handled in one of three ways, based on how the employer designs the plan:
They are forfeited at the end of the plan year.
Up to $640 of the balance is rolled over to the next plan year. The employer can choose how much the employees can roll over, up to the limit. If there is a remaining balance beyond the $640, it is forfeited.
A grace period is allowed in the first few months of a new plan year to be paid with old plan year funds. Remaining balances are then forfeited.
The FSA caveat: Employees have access to the full annual FSA election amount at the beginning of the year, so there’s always a risk that they could use their FSA allotment and quit or be let go before they’ve fully funded the account through payroll contributions or after you funded it.
Just as employees risk forfeiting their money if they don’t spend it in time, employers risk this money if the employee leaves before their and your contributions have caught up to their reimbursements.
If you are caught in this situation, you are not allowed to withhold additional funds from the employee’s final paycheck to make up for those funds, and you are also barred from sending them a bill to recapture those funds.
Additional payroll contributions beyond the final paycheck can only be made if the employee elects to continue their FSA plan through COBRA.
As more Americans struggle with medical costs and rising out-of-pocket expenses, more employers are starting to offer deductible-free plans, according to a new report.
Mercer’s “2023-2024 Inside Employees’ Minds” survey results jibe with other reports that some insurers’ fastest growing group health plans carry no deductibles.
Workers covered by these plans often receive more preventive care than those who are in plans with deductibles, and they often pay up to 50% less out of pocket, UnitedHealthcare’s chief operating office, Dirk McMahon, told investors recently. He added that these plans can help their employers reduce the total cost of care by an average of 11%.
Employers understand the increasing financial burden that health insurance and out-of-pocket costs are imposing on some of their employees. Medical debt is a growing problem in the U.S.
Employers are taking a number of different approaches:
15% offer free employee-only coverage in at least one medical plan.
18% use salary-based contributions, meaning that employees who earn less also pay less for their coverage, while their higher-wage colleagues pay more.
39% offer at least one health plan with no or low deductible. These are often known as copay plans.
6% make larger contributions to the health savings accounts of their lower-wage staff.
Employers have several types of health plans to choose from when designing their benefits packages. Because attracting and retaining talented staff is a high priority for many organizations, they often look for the best health plan available.
One option that appeals to many employers is the no-deductible health plan. These plans are attractive because they cover health care costs immediately, eliminating high out-of-pocket expenses for employees. But, no-deducible health plans have high premiums, which may make them difficult for some employers to afford.
No-deductible plan trade-offs
No-deductible plans may:
Have higher premiums to account for the more generous benefit.
Feature higher copays.
Have limited network providers,
Have fewer covered health services.
Depending on your benefits budget and your workforce demographics, no-deductible health plans may be your best option for staff who are high health care users. There are a few issues you should consider when mulling offering such plans. Here are the main pros and cons:
Pros
These plans can reduce your workers’ out-of-pocket medical expenses.
The plans are well-suited for people who incur high medical expenses, like those with chronic conditions, who make frequent doctor’s visits and/or who are taking expensive prescription medications or have many prescriptions they regularly refill.
People who know how much they will pay upfront for care are more likely to access care when they need it, particularly for chronic conditions, and they are more likely to go to annual checkups.
There is less likelihood of receiving surprise medical bills.
Cons
These plans typically have higher monthly premiums.
Copay outlays can add up for high users of medical services.
Some plans may restrict eligible services and items, perhaps by not including certain drugs in their formularies or by offering a limited provider network.
The takeaway
While no-deductible plans will be attractive to many workers, they are not for everyone and their higher premium may dissuade many people from choosing them, even if you have a generous premium-sharing arrangement. If you agree to pay a set amount towards their insurance premium, these plans can still cost hundreds of dollars more a month for the employee.
People who do not use their health insurance much are not good candidates for these plans as well, since they may end up paying higher premiums for services they don’t use.
A new report has found that the top driver of health care costs in the U.S. is chronic conditions, emphasizing the role that employers can assume in helping their employees better maintain these ailments.
Chronic diseases are a major strain on the health care system, and they are costly to treat. Worse, many people with these ailments do not manage them well and do not change their lifestyles to improve them.
According to the Centers for Disease Control, six out of every 10 American adults have at least one chronic condition, with 40% having two or more.
As a result, chronic conditions play an outsized role in the cost of group health insurance. In order to contain costs and improve outcomes for their workers, employers can employ a number of different strategies, according to the report by the International Foundation of Employee Benefit Plans.
The CDC defines chronic disease as a condition that lasts at least a year and affects or limits daily activities or requires regular medical attention. The seven most common conditions are:
Heart disease
Cancer
Chronic lung disease
Stroke
Alzheimer’s
Diabetes
Chronic kidney disease.
While there is no one-size-fits-all solution, employers can try to contain costs, and hopefully their insurance premiums, by implementing a few strategies.
Disease management
Depending on the condition, chronic disease management programs will vary and it is usually a multi-pronged approach involving the plan enrollee’s health care provider and employer programs. Disease management should include:
Regular screenings and checkups.
Structured treatment plans.
Education on how to manage their disease and self-care strategies. Some programs help enrollees to set goals for their health.
Promoting the benefits of regular exercise and a nutritious diet, and empowering enrollees to take control of their health.
Integrating wellness programs focused on chronic disease management and that promote a healthy lifestyle.
Empowering enrollees to take control of their health.
Coordinated care
It’s important for people with chronic conditions to receive care that’s coordinated among different providers. This is crucial as these diseases can have multiple effects, requiring the involvement of more than one physician with different specialties.
The key is that providers have in place systems and procedures that ensure that the patient’s various physicians are sharing information with one another, and that the patient is kept in the loop. This care requires:
Access to care from different health care providers,
Coordination between primary care, acute care and long-term care,
Strong communications among providers, and
Easily understandable patient communications.
Employee engagement and education
You as an employer can also do your part by making sure employees with chronic diseases make choices that ensure access to providers that focus on coordinated care.
You can also offer wellness programs that give employees with chronic diseases access to care coordination, medication management, disease-specific education, self-monitoring tools and peer support. For example, an employee wellness program may provide employees with diabetes with glucose meters, insulin pumps, diabetes educators and online support groups.
Employee wellness programs can help employees adopt healthier behaviors and lifestyles by providing them with information, motivation, support and resources. For example, an employee wellness program may offer free or discounted gym memberships, healthy food options, wellness challenges and rewards for reaching health goals.
Take advantage of essential services
To keep their disease from worsening or to identify possible health issues that may be developing, it’s vital that plan enrollees take advantage of preventive services that the Affordable Care Act requires be offered with no out-of-pocket costs:
Screenings and counseling.
Routine immunizations.
Preventive services for men and women.
Even when a member does not receive preventive care and develops a chronic disease, preventive measures can ensure that the disease remains in a low-severity stage.
The takeaway
The key for employers is outreach, particularly in the run-up to and during open enrollment. You can take additional steps to ensure workers with chronic disease are engaged and that they are educated in choosing plans that may offer them the best care for their condition.
Furthermore, you can offer wellness plans that reward healthy behavior, and you can educate your workers about their health coverage and the importance of getting regular screenings and inoculations.
The Equal Employment Opportunity Commission is seeing a wave of retaliation complaints by employees. Retaliation charges accounted for more than 35% of all charges filed with the commission in fiscal year 2022.
Retaliation means any adverse action that you or someone who works for you takes against an employee because they complained about harassment or discrimination. Any negative action that would deter a reasonable worker in the same situation from making a complaint qualifies as retaliation.
Employees who participate in an investigation of any of these problems are also protected. For example, you cannot punish an employee for giving a statement to a government agency that is looking into a discrimination claim.
Employment law attorneys say that the increase is in part because employees who sue for retaliation have a higher degree of success than those who bring a regular discrimination charge. It’s important that all employers train their managers and supervisors to not retaliate against workers making complaints, as the result can be a costly lawsuit.
Thanks to a precedent-setting case, Burlington Northern & Santa Fe Railroad vs. White, while an employee alleging discrimination must prove that they suffered a “materially adverse employment action,” a retaliation plaintiff only needs to show that the employer undertook some action that may dissuade them from making or supporting a charge.
Employment law experts recommend that employers do the following:
Set clear and unambiguous policies
Your company policy should clearly state that retaliation is not permitted.
The policy should describe the parameters of inappropriate conduct as well as you can define them.
Put the policy in writing.
Set reporting and grievance procedures, including the person to whom the employee can report a retaliation complaint.
Have staff sign an acknowledgment of receipt of your policy.
Investigate complaints promptly
Remember that anyone who participates in an investigation is likely protected from retaliation (not just the employee who makes a complaint, but witnesses as well).
Communicate results of the investigation to the grievant.
Take effective remedial measures, including carefully reviewing all disciplinary measures before imposing them. You should also ensure that disciplinary actions are consistent with past practices.
Train managers and supervisors
Finally, you should train managers and supervisors and ensure they understand your policies.
Make sure they understand who is protected from retaliation (participants, complainants, and even persons related to the complainant in some cases).
They should also understand what constitutes retaliatory conduct and, if they are unsure, they should speak to your human resources manager.
While the Affordable Care Act requires employers to offer coverage for employees’ adult children until the age of 26, it does not require them to offer coverage to their workers’ spouses.
As employers try to balance the costs of offering health coverage, spousal coverage is often on the table for cutting when making cost decisions. Many employers view offering spousal coverage as a way to keep up morale and serve as a recruitment and retention tool, but others consider the option a burden.
Cutting it out completely though is often a bitter pill for many employees to swallow, particularly if their spouse’s employer doesn’t offer coverage or if they don’t work. And if they are forced to go to a public insurance exchange, their bitterness could deepen further. What’s required is a diplomatic solution.
Instead of cutting it out completely, employee benefits experts suggest one of two ways to deal with the spousal coverage dilemma and reduce costs at the same time: a spousal carve-out or a spousal surcharge.
1. Spousal carve-out
With this approach, the employer defines plan eligibility so that spouses are ineligible to participate if they are eligible for coverage at their own employer. As an employer, you need to consider the following if this is the way you want to go:
Will eligibility for any type of employer-sponsored coverage make the spouse ineligible? What if the spouse is only eligible for an employer-sponsored “mini-med” plan or other limited plan coverage?
Is the cost of the other employer-sponsored coverage a factor in determining eligibility? One common approach is to make the spouse ineligible for the plan only if the spouse’s cost of the other employer-sponsored coverage is less than a certain dollar amount.
Creative approach: Create a spousal carve-out program with an escape hatch that allows the spouse to remain on your plan if the price the spouse would have to pay for coverage under his or her own employer’s plan exceeds a specified threshold.
2. Spousal surcharge
Charging a surcharge for spouses who are eligible for coverage at their own employer provides an incentive for spouses to choose to enroll in the other coverage, while still allowing eligibility in the employer’s plan for those who need it.
That said, this approach is an extra level of complexity in the communication and administration of benefits and payroll.
Creative approach: You can use a carrot instead of a stick. That is, give a monetary award to employees whose spouses switch from your plan to the spouse’s employer’s plan.
Verification
There are three ways to verify if a spouse has coverage through their employer:
Employee affidavit. Your employee signs a statement certifying that his or her spouse is ineligible for other employer-sponsored coverage.
Certification from the spouse’s employer. Have the spouse’s employer provide a letter stating that they are ineligible for health coverage. This approach may be difficult if the employer is not cooperative.
Eligibility audits. You can do spot-checking of employee spouses’ lack of access to coverage by randomly picking staff members and contacting each spouse’s employer, rather than seeking verification in every case.
A new study’s findings that many workers have a poor understanding of their employer-sponsored health insurance benefits, presents an opportunity for businesses to extend targeted support to staff during open enrollment.
The “2023 Optavise Healthcare Literacy Survey” found that 32% of employees are not confident about understanding how their plan works, meaning that many of your staff may have trouble finding, understanding and using information and services to make health insurance decisions.
As the plan sponsor, you can step in to help them during open enrollment by providing them with tailored information and guidance.
Employees who don’t understand their coverage may choose plans that are not right for them, and because of their lack of knowledge, they are more likely to stick with the same plan and not explore other options during open enrollment.
To help your staff who may not be as up to speed on how their health plan works, your human resources team has a few options.
Focus on younger workers
The Optavise study found differences in health insurance understanding among the various generations in the workforce, with millennials and Gen Z workers having the poorest understanding of health insurance terms.
The study authors recommend a return-to-basics approach during open enrollment for these workers. That could include holding meetings for them to explain the basics of health insurance, particularly how plans with higher premiums will typically have lower deductibles and copays, while low-premium plans usually have higher deductibles and copays.
Also, if you have a multi-generational workforce or workers with chronic conditions, you’ll want to tailor your pitches depending on the employee. Your presentations should focus on multiple scenarios that explain which options are best, depending on your workers’ age, health and life circumstances.
One-on-one communications
The study found that workers don’t often turn to their employers first when they have questions or need information about health insurance or their health plans:
46% said they reached out to friends and family for information.
35% taught themselves about terms and processes by going online or reading other materials.
27% sought out information from their company’s HR department.
Given the often-poor accuracy of information from online sources, and that their friends and family likely aren’t experts on the subject, it’s a good bet that many people are getting bad information about health insurance.
While group training and providing online tools and printed material can help your workers, one-on-one meetings seem to be the most effective in helping workers:
84% reported they found one-on-one sessions very or extremely useful.
68% said online resources were very or extremely helpful.
Only 49% found e-mail correspondence was very or extremely helpful.
You may want to urge your employees to schedule face-to-face meetings with relevant HR staff. One-on-one meetings let your employees ask specific questions. By having conversations about their current medical needs or family situation, employees can best determine the most reasonable option for them.
Focus on points of confusion
The study also asked workers what kind of information about their group health plans they wanted to know more about. The following answers provide a list of topics you may want to cover during open enrollment meetings:
How to avoid surprise medical bills.
How my deductible, copay/coinsurance and out-of-pocket maximum work, and what it means for my wallet.
How to review an Explanation of Benefits and medical bill for errors.
Researching health care costs, and why it matters.
How to choose where to get care.
How to choose a plan.
The takeaway
You can play an important role in educating your workers about their health coverage.
Smart employers will tailor their benefits communications, literature and meetings to meet the varying needs of their workers. It’s good to provide materials and education through various sources like a portal and literature, meetings — and in particular one-on-one meetings, which are seen as the most effective.
A personal approach can be especially helpful to ensure that your workers choose plans from which they will benefit the most in light of their budget and needs.
