Reimbursement Accounts Offer Potential Savings
By Vic Cox
One way UCSB employees may be able to soften the impact of higher medical plan premiums in 2007 (see Oct. 23 issue) is to sign up for the Health Care Reimbursement Account (HCRA) during this month’s Open Enrollment—which ends at midnight on Nov. 21. They even get a new, easier way to pay by using a secured credit card. But advance planning is important because this method of payment may not fit everyone’s needs.
The HCRA accumulates pre-tax payroll deductions in a personal account, which is administered by SHPS, Inc., for the University. The employee decides on the amount deducted monthly based on qualified out-of-pocket medical expenses over the calendar year. These out-of-pocket expenses can include, for example, co-payments for services and prescription drugs under his or her medical, vision, and dental plans. Certain over-the-counter drugs and medical supplies may be covered. A minimum of $180 a year is required to maintain a HCRA.
For details, see the Oct. 18 and 23 memos on the At Your Service Web site <http://atyourservice.ucop.edu/
>. They point out that employees can lower their state and federal taxes by using a HCRA, but there can be disadvantages to the account. To many, the largest one is the provision that any money remaining in the HCRA, after a designated grace period, goes into the University’s general fund instead of rolling over to the employee’s account.
“The University retains unspent (forfeited) account funds and uses them to help pay administrative costs of the HCRA program,” explains Norm Cheever of the UC Human Resources and Benefits Communications Office. This rule is based on U. S. Internal Revenue Service regulations.
Because of this feature, warns UCSB Health Care Facilitator Laura Morgan, it is usually wise to estimate the HCRA deduction based on how much the employee (and family) customarily pay out of pocket for a 12-month period. “Use your grace period, which is now 10 weeks, as a safeguard against over-estimating expenses,” she suggests.
For those thinking of setting up such an account another factor arises when the employee itemizes deductions for state and federal tax returns. Since HCRA contains only pre-tax dollars, the expenses it pays for cannot also count toward reducing a tax obligation.
To make HCRAs easier to use, a SHPS spending account card will be introduced in 2007 for those who have signed up by Nov. 21. Looking and functioning like a VISA credit card, the new card requires no PIN and minimizes having to file claim forms for reimbursement. However, SHPS may request receipts for purchases that are not automatically authorized, so card users will need to keep all receipts, according to Morgan.
The account card is good for three years, assuming the employee renews his/her HCRA each year, before it must be destroyed and a new one issued. For details on eligible expenses and the rules governing use of the card, go to <http://www.myshps.com