General Information and Answers for Employers

• What is a quick way to describe what LibertySmart does?
• LibertySmart is patent pending tools and methodologies that identify employee preventive and medical expenses, and then enhance benefit programs to meet those expenses, saving a minimum of $20 or more per employee per month all while the employer increases spendable health care dollars to the employee.


• How does LibertySmart work?
• • LibertySmart uses LibertySmart's proprietary Health Spending Planner to identify the employee expenses.
  • A reimbursement plan to pay for these out of pocket medical expenses.
  • The Optimizer program is used to evaluate all plans and need for consumer driven health care measures and then enhances the benefit plans to reach optimum utilization.
  • The Optimizer program ideally will shift as much of the insurance premium as possible to the employee so that the employee becomes aware of how much their medical expenses are costing.
  • The result is a savings of $20 or more per employee per month for the employer and an increase in spendable health care dollars for the employee.


• What size or type of companies could benefit the most from LibertySmart Solutions?
• LibertySmart is for employers who have or will have a Cafeteria 125 plan and have at least 50 employees (fewer than 50 require additional set up fees).


• How does a Section 125 Plan operate?
• It allows employees to pay their portion of the health insurance premium and out of pocket medical expenses with pre-tax dollars saving federal, state, local and FICA taxes and the employer saves the matching FICA.


• If the employer has been paying 100% of the premiums can they still utilize LibertySmart?
• Yes, a Section 125 Plan must be installed and an election form signed by each employee covered by the health insurance, The Section 125 Plan can be a Premium Only Plan (POP Plan) which is fairly simple and inexpensive to install.


• What is an HRA?
• The IRS introduced the Health Reimbursement Arrangement (HRA) in 2002 to allow employer's the ability to pay for preventive and medical expenses that may be incurred by the employee prior to the satisfying of a deductible, co-pay and other expenses.


• How does a typical HRA work?
• The typical HRA is structured to align with an insurance policy that has a high deductible. The HRA enables the employer to fund the difference between the old deductible and new higher deductible. The employer may save money from the reduced premium but is exposed to the larger risk of funding the difference for two (2) or three (3) deductibles per family.


• How does LibertySmart Solutions enhance the typical HRA?
• LibertySmart's Optimizer program re-evaluates the dollars spent by the employee to satisfy deductibles and pay other non-reimbursed expenses and adjust the plans to include those expenses. Savings are again realized through this process and the risk for employees and employers is reduced.


• If a traditional HRA is in place, can the funding of this HRA be considered for LibertySmart?
• Yes. Funding of an HRA is considered to be premium paid by the employer


• What is an HSA?
• The HSA (Health Savings Account) was introduced in 2004. It requires the employer to adopt a high deductible health plan (HDHP). Typically $1,500 or $2,000 a year and includes employee income and plan spending restrictions. The intent is that the employee will be given the reduced premium dollars to invest in their Health Savings Account and if these dollars are not used they will accrue and after retirement may be used for whatever is necessary. The high deductible associated with an HSA and the restrictions of accessing the funds in the HSA until after the deductible has been satisfied discourage the majority of employees from risking participation in an HSA.


• Why would the IRS allow plans that reduce taxes?
• The government under pressure from employers and employees established these benefit programs to help the public. The IRS is the administrator who oversees the programs established by the government.


• How are the reimbursement numbers calculated?
• The reimbursement calculations are based on the actual expenses the employees incur. These figures are based on the Health Spending Planner numbers entered by employees or in the absence of employees completing the Planner, include demographic and macroeconomic assumptions. If all employees complete and submit their totals from the LibertySmart Health Spending Planner, then the reimbursement will be based on the average of their actual expenses to ensure the amount is not too high or too low.


• Can the reimbursement be adjusted up or down?
• Yes. Reimbursement accounts may be adjusted as often as the employer may elect.


• What happens if the employee uses the debit card for non-medical purchases?
• For any items purchased, which are not considered to be automatically substantiated, there is a sequential procedure to be followed as outlined in Revenue Ruling 2003-43: If substantiation is not accepted as a medical or prescribed preventive allowable, then the following will be done:
  
  • The employee pays back the improper amount to the Plan (employer).
  • The employer withholds the amount of improper payment from the employee's wages or other compensation (possibly from a bonus paid to the employee).
  • The employer offsets the improper payment against future claims for reimbursement - i.e. the debit card gets charged at the next payroll and the improper amount is then taken off of the card and given back to the Plan (employer).
  • If none of the above actions are successful or are otherwise unavailable, the employee remains indebted to the employer for the improper amount and the employer treats it as it would any other business indebtedness (the employer could write it off as a bad debt and issues a Form 1099- no payroll consequences, etc.).
  • The result is a savings of $20 or more per employee per month for the employer and an increase in spendable health care dollars for the employee.
  In addition to the above, the employer takes other action as deemed necessary to ensure further violations do not occur such as denial of access to account until the improper amount has been repaid.


• How do steps one and two as outlined in the previous FAQ actually flow in payroll?
• The unsubstantiated / improper amount gets deducted from the employeeÕs payroll on a post-tax basis (or the employee can write a check). Once the dollars have been paid back to the Plan (employer's operating account), the employer will fund that same amount back to the employee's debit card. Essentially, the employee does not lose any available dollars. The payment is made with after tax dollars ensuring that the taxes owed were paid.


• What happens to the employees unused reimbursement money at the end of the year?
• Unused amounts in a reimbursement plan rollover year to year. There should be no limit as to the amount that can be rolled or the time in which the amounts must be expended.


• What is the rational for rolling over the unused funds?
• Experience shows that medical expenses for most people are not incurred on a flat line they fluctuate year to year. With the rollover feature, when they have the spike the dollars are there ready to be used.


• What happens upon termination of the employee?
• LibertySmart recommends that employees are placed on a four year vesting schedule that will enable the employee to have access to 100% of the funds to be used for qualified purchases only. If the employees leave prior to the four year vesting, they may forfeit some or all of the money. If the employee is terminated for cause, all of the funds will be retained by the employer.


• Can the unused reimbursement funds be used for COBRA?
• Yes. Upon termination and/or retirement the funds can be made available to the employee for payment of COBRA until all funds are depleted.


• Can the unused reimbursement funds be used for retirement?
• The funds may be used for qualified medical purchases before and after retirement.


• What if the employer wants to use LibertySmart Solutions only for a few select group(s) of employees to begin with?
• This is allowable as long as they are a separate class of employees. You can NOT discriminate within the same class of employees - if you offer it to one within the class then you must offer it to everyone else within that class.
• What determines a separate "class" of employees?
• To be compliant with ERISA as well as the IRS, these "classes" can follow their group health plan classes or can be defined by the employer.


• What happens to the money if an employer terminates the reimbursement plan and there are still funds within the Plan?
• With the HRA methodology, the client must leave the money on account until each employee has no money left on account OR notifies the employees that the Plan is ending and they need to submit their final eligible expenses. Anything left in the Plan is equally distributed amongst all Plan contributors. Since the employer is the only contributor, the employer keeps the remaining funds.


• What if there are health insurance provider requirements that prohibit the employer from paying less than 50% of the premium (like Blue Cross, etc.)?
• All Section 125 amounts are "deemed to be employer contributions" per IRS Proposed Reg. 1,129-1 Q &A. The issue of adverse selection is addressed in that LibertySmart actually increases the benefit to the employees so they are encouraged to participate in the group health plan as well as LibertySmart.


• Is it required that a separate bank account be set up for the funding of the reimbursements?
• Yes, with the debit card methodology there MUST be a separate account. This "trust" account is owned by the employer and is necessary in order to track the employer contributions and employee use of the debit cards. With this separate account there are no time consuming reconciliation issues as with existing bank accounts, plus it keeps employees from accessing general operating accounts.


• What if the employee does not work at all for the pay period in which he/she normally receives reimbursement?
• This is handled identical to how the employer handles collecting the insurance premiums that employees are responsible to pay. Some payroll systems take care of this automatically - this will be an employer-by-employer situation.


• Does LibertySmart enhance an existing FSA (full cafeteria plan)?
• Yes, the reimbursement and FSA documents simply need to be amended (done at installation) to reflect that for those employees participating in the FSA, any eligible expenses apply first to their FSA and then to LibertySmart Solutions.


• Can all members of an LLC participate in LibertySmart Solutions?
• It depends on which way the LLC elects to be taxed. If they elect to be taxed as a partnership or an S Corporation then the answer is no, the members who are a greater than 1% shareholder cannot participate. If the LLC elects to be taxed as a Corporation then yes, all the members can participate.


• What do I say to my employees who question about participating?
• Employees should be asked if they would rather have $100 in the form of a paycheck or $110 on a VISA card to use for the health care purchases. Our experience is that most employees welcome the additional money and are glad to know their future health care benefits are being addressed.