What is Consumer-Directed Health (CDH)?
Consumer-Directed Health is an integrated approach to healthcare which helps employers manage costs while engaging employees to take control of their health and healthcare dollars.
Our approach to CDH combines three components:
How does CDH help employers?
CDH combines quality health coverage and member engagement along with a choice of personal funding accounts designed to help manage costs for employers and employees. This enables them to provide employees with coverage that balances personal health responsibility and freedom of choice.
With a CDH approach, employers can:
How does CDH help employees and their families?
Member engagement and personal funding accounts provide employees and their families with more opportunities and incentives to take control of their health and become smarter, healthier consumers. Providing financial incentives encourages employees to better understand their personal health, health coverage benefits and the options and costs of care available to them.
How does CDH help producers in their business?
With the unsustainable rising cost of healthcare, producers can help clients by bringing creative approaches to the table. By engaging members, some of the employer’s inherited “responsibility” for healthcare expense is shared with the member—the person with the most to gain by good health and good healthcare. Personal funding accounts bring clients a vehicle that can reduce their expenses through tax savings and also allow members’ potential tax savings while increasing their flexibility and control.
What are personal funding accounts?
Personal funding accounts provide healthcare dollars for members to use when paying qualified medical expenses. The three basic types are the Health Savings Account (HSA), the Health Reimbursement Arrangement (HRA), and the Flexible Spending Account (FSA). A dependent-care FSA (DCFSA) is also available, not for medical expenses, but for care of a dependent so the member can work (or look for work).
Requires qualified high-deductible health plan (HDHP)
Employee contributions allowed
Yes (pre-tax or tax-deductible)
Employer contributions allowed
Allocations/contributions subject to annual dollar limits
As defined by IRS
At employer's discretion
Healthcare FSA limits at employer's discretion1
Funds can be invested
Distributions permitted for non-medical reasons
Unused funds carry over year to year
Account is fully portable
Please note: This information is not intended to provide tax or legal advice. Employers and their employees should consult with their own legal or tax advisors regarding their particular circumstances before taking action. This material cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
What is an HSA?
A Health Savings Account (HSA) is an employee-owned account that works in conjunction with a qualified, high-deductible health plan that allows employees to save for future medical costs through tax-advantaged contributions. Each year, total contributions to an HSA (by the employer, the employee or anyone else on behalf of the employee) may not exceed the annual limit set by the Internal Revenue Service. In addition, if offered by the plan administrator, funds in an HSA may be invested by members in money market accounts, mutual funds, and other financial options permitted by IRS rules.
What is required to have an HSA?
An HSA account requires that the employee be covered under a qualified, high-deductible health plan. The Your Future plan was specifically designed to work with HSA accounts.
Are there eligibility restrictions for owners for an HSA?
There are no restrictions on business owners being able to open an HSA as long as they are eligible (covered under a qualified high-deductible health plan). However, only W-2 employees are eligible for a cafeteria plan. Partners and certain S-Corporation shareholders are restricted from making pretax HSA contributions through a cafeteria plan. Also, owners should consider non-discrimination rules when making HSA contributions through cafeteria plans. They can make a post-tax contribution and claim an "above-the-line" deduction on their tax return.
How may funds in the HSA be used?
Funds from the HSA account may be used to pay for qualified medical expenses as defined by the IRS, which may include out-of-pocket expenses like deductibles, copays, coinsurance, as well as treatments not covered by a health plan such as hearing aids or Lasik eye surgery. If the member receives distributions for reasons other than to pay for qualified medical expenses, the amount withdrawn may be subject to income tax and to an additional 10 percent excise tax. The choice of whether and when to use funds in the HSA account belongs to members.
Can HSA funds be used to pay for medications? Vision? Non-cosmetic dental claims?
Yes. Even though the HSA-qualified health plan that accompanies an HSA may not cover certain services, the HSA funding account can be used to pay for any qualified medical expense allowed under IRS guidelines. Under federal healthcare reform, except for insulin, you must have a doctor's prescription to use your HSA for over-the-counter drugs and medicines.
What happens to the HSA account when an employee leaves the company?
Employees keep the account with them if they change employment or retire.
What is an HRA?
A Health Reimbursement Arrangement (HRA) is an employer-sponsored and funded healthcare account that members can use to help pay for qualified medical expenses. Because we administer both the health plan and the HRA, our integrated claims processing allows HRA funds to be automatically applied to qualified medical expenses, so in most cases there’s no need for members to fill out forms or wait for reimbursement checks. We pay all HRA-eligible expenses on behalf of the employer at the time claims are processed. Employers then reimburse us via convenient electronic funds transfer.
Who can make contributions to the HRA?
An HRA must be paid for solely by the employer; employees are not permitted to make contributions.
Is the owner of a company eligible for an HRA?
Self-employed persons working in a LLC, partnership, sole-proprietorship or S corporation are not considered "employees" for purposes of tax issues related to coverage under any employer-sponsored health plan, including HRA plans, and are not eligible to participate. The term "employee" used in Section 105 (referring to employer-provided health benefits) of the Internal Revenue Code does not include a self-employed individual as defined in IRC 401(c).
What HRA contribution and rollover options are available?
We offer employers considerable flexibility in how they fund their HRA and how those funds are allowed to accumulate over time. Some plan designs are “member pay first” and others are “HRA pay first.” Employers also have options to define whether unused allocations can roll over at the end of the year, and the maximum amount that can roll over each year as a percentage of employee allocation. A leveled allocation option is also available for employers who want to take family size into consideration when determining the HRA allocation. Groups of at least 200 eligible employees can fund from up to 100 percent of the medical plan deductible and have more options for rollover percentages and dependent allocations. Please contact your Premera sales representative for more information.
What expenses does an HRA cover?
All of our HRA products are designed to apply funds at a minimum to the member medical plan deductible. Groups may choose from three options that extend eligibility to:
These options are all applied at the group level.
How is the HRA funded when a new employee is hired?
When a new employee becomes eligible for coverage, we (as the administrator of the HRA) will allocate to the employee’s HRA fund the full or prorated amount you have selected to apply to future medical expenses. Since employers pay only for what their employees use (up to the total allocation amount), there is no requirement to advance funds at the time of hire. Groups under 200 eligible employees have monthly prorated allocations for newly eligible members. The amount is based on the number of months left in the plan year. Groups of at least 200 eligible employees have the option of monthly, quarterly or no proration (a full year’s funding regardless when they start).
What happens to the HRA funds when an employee leaves a company?
If an employee leaves, and has not elected to continue coverage, any unused portion of the HRA allocation (after all prior claims have been paid) is retained by the employer. If COBRA is elected, the former employee can participate in the HRA for the duration of continued plan coverage under COBRA.
What is a Health FSA?
A Health Flexible Spending Account (Health FSA) is a tax-advantaged, employer-owned healthcare spending account that members can use to pay for eligible expenses. FSAs can be paired with many of our health plans. Note: Some FSAs can be offered together with other personal funding accounts, with certain restrictions. We encourage employers to consult their tax and legal advisors regarding which type or combination of spending accounts they should consider.
Who can make contributions to the Health FSA?
Contributions to the Health FSA may be made by the employee and/or the employer. Employee contributions are made pre-tax.
What are pre-tax contributions?
Pre-tax contributions are funds taken from an employee's gross earnings before taxes are computed and deducted.
Is there anything else to consider with a Health FSA?
Factors employees will need to keep in mind:
What does a Health FSA cover?
Health FSA funds can be used to pay for qualified medical expenses as defined by IRS guidelines, including but not limited to deductibles, coinsurance, and copays. Premera can work with you to establish the FSA options for the group.
Can Health FSA funds be used to pay for medications? Vision? Non-cosmetic dental claims?
Yes. There are a variety of products and services that meet the approved healthcare expenditures. Under federal healthcare reform, except for insulin, you must have a doctor's prescription to use your FSA for over-the-counter drugs and medicines.
Is there a limit to how much employees can contribute to their Health FSA?
There is no limit on the amount of money that can be contributed to the Health FSA, unless the employer has set a limit for the plan.
Can a FSA also cover dependent care costs?
An employer can sponsor a dependent-care FSA, which is separate from a Health FSA. The most common expense covered by dependent-care FSA plans is child care. Funds to pay for employees' daycare expenses may be deducted from their paycheck on a pre-tax basis.
Unlike a Health FSA, funds from a dependent care account can only be disbursed up to the amount already contributed. Also, there are annual contribution limits for the dependent-care FSA set by the IRS, so please consult your tax advisor for up-to-date limits.
What are the implementation steps for employers?
Implementation for most personal funding accounts occurs in conjunction with the health plan implementation, allowing for simplified data collection. This is a general overview of the process. Steps may vary for larger, more customized accounts.
The development and distribution of ERISA plan documents is the responsibility of the plan sponsor and not Premera. Your Premera sales representative can provide a template of a Summary Plan Description for inclusion of ERISA information in member benefit booklets, but they should consult legal counsel regarding their plan document needs.
Are there additional applications for employees to complete?
HSA and FSA participants will need to complete applications to elect and authorize the employer to make payroll contributions. These forms are made available to the employer to help gather the necessary information. Our banking partner requires HSA participants to have read their disclosure form; however, there is no requirement to submit signed forms.
Do the participants get a welcome kit?
Participants with accounts that include a healthcare payment card will receive a welcome kit mailed to their home that includes the card, a privacy notice, information about using the card, and directions on how to log on to the Premera member web site to view their account. Those who do not receive a healthcare payment card will get their personal funding account information in their health plan welcome kit or through a separate mailing.
How do employers notify Premera of new hires, terminations or changes?
Updating participant information for personal funding accounts happens in conjunction with the existing process for updating health plan participant information. Contact your sales representative if you have questions about this process.
What if I have a group whose employees don't have everyday access to computers?
Premera offers paper claim forms and a customer service line (800-941-6121) which is available 24 hours a day, seven days a week and includes interactive voice response (IVR) as well as well-trained representatives. The employer might also want to consider setting up a kiosk or public terminal for participant use.
How are personal funding accounts priced?
Employers are charged an initial setup fee to establish the account(s) and an annual renewal fee. There is also a monthly administration fee per participant, per month for each account offered. Non-discrimination testing services are also available for a fee. Specific pricing is available from your Premera sales representative and included in a health plan proposal.
How do employers and employees access their account information?
Members and employers can log in the top right area of premera.com where it says “Log In As…” to access their dashboard through the Personal Funding Accounts link. They also can call personal funding account customer service at 800-941-6121 and use either the interactive voice response (IVR) system or speak with a customer service representative. Account information is also available on claim reimbursement check stubs.
What information can employers access on the Personal Funding Account system?
Employers can access their account balances, see fund transfer activity and monitor payment amounts. Employers can also review the information we have on file for each employee.
What information can members access on the Personal Funding Account system?
Members can access specific claims status, activity and account balances via the funding account section of the member website. If their employer allows, they may be able to set up claims paid automatically (auto-pay) or they can review each one individually (click-to-pay). They can also provide bank account information to have claims paid via direct deposit.
Do covered dependents of members have separate accounts?
No. Since personal funding accounts are subscriber-only benefits, the subscriber is the only one with an account. However, the subscriber may choose to use funds in their account to pay for eligible expenses of qualified family members.
If a member doesn’t have access to the Internet, how do they access account information?
Members can call personal funding account customer service at 800-941-6121 and either use the interactive voice response (IVR) system or speak with a customer service representative. The same information that appears on the member website can be accessed through the customer service number.
How does the account funding process work?
What is the process for the weekly claim funding to be collected via ACH?
Employers are notified via email of the weekly ACH funding amount on Tuesday mornings. Employers will usually see the transaction posted to their account on Wednesday. A detailed listing of all paid claims is available on the Employer Dashboard to support the weekly invoices and ACH transfers.
How does Premera bill for the monthly administration fees?
Administrative fees are billed on the 15th of each month for enrollment effective as of the first of that month. Electronic bills are generated and e-mailed, with collections shortly thereafter, typically on a pre-arranged basis through an ACH transaction. Set-up charges are included in the first monthly administrative billing.
How does the claim process work?
Typically when members visit a provider they present a Premera ID card. If a copay is due at the time of the visit, members can pay it using their Premera healthcare payment card, if offered by the employer. If the employer does not offer a healthcare payment card, members can pay out-of-pocket and request reimbursement online. Members also may receive other services from the provider that require the provider to submit the claim to Premera.
As per the normal process, Premera will re-price and process the claim and determine the remaining member liability for the service. Members will then receive an EOB from Premera and a bill from the doctor. Members should never pay a doctor's bill until Premera re-prices the claim and they receive an EOB. Members can pay out-of-pocket and submit a reimbursement request to Premera, or, if they have one, they can use their Premera healthcare payment card. Members will need to submit a receipt when requested that includes the date of service, provider's name, recipient's name, type of service and the amount paid.
How often do you process claims?
Claims are processed as soon as they are received. Claims are batched and paid weekly and claim checks are generated on Saturdays.
In what form are payments made?
The default payment type from our personal funding accounts is via check to the member. However, for groups under 200, employers can make a group-level decision to have the provider paid instead or allow members to set up their member website to pay their provider either through “auto-pay” or “click-to-pay” (works like a bill payment system on a bank web site). For large groups, we can customize more by determining who gets paid based on types of claims. If members don't want checks mailed to them, they add bank account information online to request a direct deposit.
How can employees tell how much money they have used from their funding account?
Members can access specific claims status, activity and account balances in the online Claims Center via the member dashboard on this web site. Log in the top right area of premera.com where it says “Log In As…” Similarly, they can call our personal funding account customer service number and either use the interactive voice response (IVR) system or talk to a customer service representative. Claim reimbursement check stubs will also indicate what the payment is for, but if a payment goes directly to a provider, members will not be sent a notice. Members with HSA accounts will receive a monthly statement from the bank if their account has activity or quarterly statements if there is no activity.
Do HRA claim payments go to members or providers? Is there a choice?
The standard setup is for the payment to go to the member; however, for groups under 200 eligible employees, employers can make a group-level decision to have the provider paid instead. For large groups, we can customize more by determining who gets paid by types of claims or by allowing members to set up their dashboard to pay the provider by either “auto-pay” or by “click-to-pay” (works like a bill-payer system on a bank's web site).
How do you verify that healthcare payment card purchases are for qualified expenses? What if they are not?
Inventory Information Approval System (IIAS)-compliant stores automatically check to ensure items purchased with the card are qualified healthcare account expenses (according to Internal Revenue Code Section 213(d)). So there is no need to submit receipts if your plan is allowed to include these expenses. The personal funding account member dashboard on premera.com includes a list of certified IIAS merchants and their planned implementation dates. The list is continually updated as additional merchants are certified and go-live dates change.
While many payment card transactions can be automatically substantiated, a percentage of those transactions do require the participant to submit documentation. If the expense can't be substantiated, we will send a request for additional details to the member. Premera will send the request three times. If the information is not provided or the information provided shows the expense was not eligible, the expense is deemed ineligible, and the participant is required to refund the amount. The payment card will be shut off until the funds are re-paid. Participants then have to return the funds to their account or the funds owed can be withheld from future claims.
When are receipts required (receipt substantiation)?
Substantiation is required by the IRS for all FSA and HRA claims. If a purchase cannot be auto-substantiated, then receipts are required. If a participant has a re-occurring claim of the same dollar amount at the same provider (e.g. maintenance drug) and they let us know, we won't request receipts after they submit an initial receipt. We also have several other ways to auto-substantiate claims. Current IRS regulations do not require HSA participants to substantiate payments by submitting receipts. However, they may need them at tax preparation time or in case of a tax audit.
Does Premera attempt to recover ineligible funds (HRA/FSA) or get the member to return those funds to their employer?
Premera does attempt to recover the funds and return them to the employer. Refunds are paid by the participant to Premera or Premera will approve future manual claims but reduce the payments by the prior amount deemed ineligible. When this is not possible, the employer can withhold the amount from the employee's wages (in states where allowed) or can include it with the employee's W-2 wages.
What kind of cards come with the personal funding accounts?
Qualified plan members receive a healthcare payment card with their welcome kit. The card is a debit card through UMB Financial Services* which is widely accepted by providers and retailers. The card can be used only for qualified healthcare expenses as outlined in the plan.
How do these cards work with personal funding accounts?
For personal funding accounts, Premera generally offers healthcare payment cards that draw on dollars from the member's funding accounts to pay for qualified healthcare expenses. Our healthcare payment card can be used for multiple accounts, offering convenience to the member. These cards are typically issued for up to three years so members aren’t issued a new card each year. In many plan designs, the member can manage which personal funding account will pay for specific claims or purchases. More information is available on UMB Financial’s web site.*
Can Premera detect if participants use their healthcare payment card for ineligible expenses?
Yes. If the expense can’t be substantiated, we will send the member a request for additional details. Premera will send the request up to three times. If the information is not provided, or the information provided shows the expense was not eligible, the expense is deemed ineligible and the participant is required to refund the amount. The payment card will be shut off until the funds are repaid.
For FSA claims—If the expense is deemed ineligible the member is given the opportunity to appeal the decision. Participants have the right to appeal a denied claim if they are not satisfied with the outcome of the initial decision. They are instructed to send the appeal in writing to Premera within 180 days of the initial claim denial. Since the employer maintains the role of plan sponsor and fiduciary, the employer is responsible for appeals of claim denials and bears any cost of the defense. Premera will forward any appeals to the employer for the final claim determination.
For HSA claims—IRS regulations do not require participants to substantiate payments by submitting receipts. However, they may need them at tax preparation time or in case of a tax audit. Using the healthcare payment card at approved healthcare locations helps avoid problems of ineligible expenses being reimbursed.
How many healthcare payment cards can be issued to each participant?
Each participant is issued one card. Additional cards for a spouse or dependent(s) or replacement cards can be ordered for $5 each. The participant must provide the name, Social Security number and date of birth of the dependent when requesting a card in that dependent’s name.
* Any Health Savings Account will be established between the individual account holder and the HSA custodian or trustee. UMB is an HSA custodian and trustee and is responsible for the administration of the HSA and compliance with all legal requirements including but not limited to tax and privacy laws. Premera Blue Cross is responsible for the administration of the health plan.
Who is UMB?
UMB Financial Corporation*, operating since 1913, provides banking experience with personal funding accounts. UMB has a large healthcare services focus and was ranked the number one ACH originator in the Midwest in 2006 with ACH transactions of more than 70 million per year. The company ranks in the top ten largest private label card issuers in the country and delivers 4.2 million statements annually via the US Postal Service. Premera has partnered with UMB because of the company’s expertise with personal funding accounts, its financial stability and its technology, which creates an excellent user experience. UMB Bank is not associated with Premera Blue Cross.
What are the interest rates with UMB* for HSAs?
The initial balance is held in an FDIC-Insured bank account (DDA), with leveled interest rates depending on the amount in the account. Please check with UMB for the most up-to-date Health Savings Account Interest Rate Schedule as it is subject to change.
What are the investment options for HSAs with UMB?*
Once participants have accumulated enough money in their HSAs to cover their medical expenses, they can choose between two investment options: the Money Market option and the Brokerage Investment option. Both investment options require a $1,000 balance be maintained in the account. The Brokerage Investment Option also has a minimum investment amount required by the fund.
What investment funds are available for HSAs with UMB?*
* Any Health Savings Account will be established between the individual account holder and the HSA custodian or trustee.
UMB is an HSA custodian and trustee and is responsible for the administration of the HSA and compliance with all legal requirements including but not limited to tax and privacy laws. Premera Blue Cross is responsible for the administration of the health plan.
Can COBRA premiums be paid for by personal funding accounts?
Funds in an HSA or HRA can be used to pay COBRA premiums during the period of unemployment. Funds in FSAs are not available to pay for COBRA premiums.
If an employee loses his or her job and goes on COBRA, can they continue using their personal funding account?
HSA funds remain available to employees even after they have changed jobs, and may be used to pay COBRA premiums during the time they are unemployed. FSA funds remain available to employees until the funds are exhausted or the end of the plan year, whichever comes first. HRA funds will remain available for as long as the HRA plan is maintained under COBRA continuation coverage.