Updates For Open Enrollment Materials

As you prepare for your 2007 open enrollment, you will want to consider the following updates:

Debit Cards

Debit cards provide a convenient way for your employees to use their FSA and HRA funds. If you offer debit cards, you will want to know that the IRS has now made the substantiation process easier. The IRS provided in Notice 2006-69 that a plan may automatically substantiate a debit card transaction that involves up to 5 co-pays without additional proof of the expense. For example, if the plan has a $10 co-pay for generic drugs and a $25 co-pay for brand drugs, your administrator could accept the debit card transaction from a drug store without further information on a $40 charge (the co-pay for 4 generic drugs) or a $60 charge (the co-pay for 1 generic and 2 brand name drugs).

Also, the IRS now permits direct substantiation of non-prescription drugs if the administrator and merchant have a system to share inventory control information, such as SKUs. Note that the plan remains responsible for maintaining records to verify that only eligible items were reimbursed.

Some type of substantiation by a third party is always required; the participant's statement alone that the expense has been incurred is insufficient.

Dependent Care FSAs

New guidance clarifies dependent care FSAs reimbursement rules allow reimbursement for:

· Specialty day camps providing instruction as well as child care. (Remember, though, that no part of an overnight camp is reimbursable, and that educational expenses, such as summer school tuition, are not reimbursable.)

· "Incidental" charges for meals and supplies, so long as there is no separate charge for the snack, t-shirt, etc.

· "Indirect" expenses such as an application fee, agency fee, or deposit if the child receives care from that provider. An employee who paid a deposit at 2 centers can claim the deposit for the center where the child was enrolled, but not the deposit for the other center. Also, FSAs may not reimburse these indirect fees until care is actually provided to the child.

· Transportation costs charged by the provider to pick-up or drop off the child, but only if the dependent care provider actually provides the transportation.

In addition, the proposed rules clarify the following eligibility provisions:

· Eligibility is determined on a daily basis. For example, reimbursement is not allowed for care provided to a 13-year old on and after the child's 13th birthday.

· Only the employee with primary custody of the child is eligible for reimbursement of dependent care expenses.

· The employee must need the care to enable him or her to work or look for work. Dependent care provided during short, temporary absences (such as for vacations or minor illnesses) is reimbursable, but care provided during an extended medical leave is not.

Annual Health Plan Notices

Many group health plan sponsors include the required annual notices in open enrollment packets. If you are doing so, please note:

· The Women's Health and Cancer Rights Act requires an annual notice to all participants describing the plan benefits payable in connection with mastectomies.

· Medicare Part D requires an annual notice to all participants regarding the plan's prescription drug creditable coverage status for purposes of Medicare Part D. (Note that the information required in this notice has changed since last year. The new model notices are available at www.cms.hhs.gov/creditablecoverage.)

· HIPAA requires a notice describing the plan's special enrollment rights, if the plan holds open enrollment.

If you would like additional information about these issues or assistance with your open enrollment materials, please contact your Ice Miller benefits attorney, or Christopher Sears, Stephanie Smithey, Linda Rowings or Greg Nichols.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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