Everyone is a pioneer in the new frontier of Health Savings Accounts (HSAs). The interest among employers and brokers is high…which seems to support the forecast that within a few years 90% of health plans will have some form of HSA. So, TPAs, as well as trustees such as banks, who snub their nose or dawdle at the idea of HSAs do so at their marketplace peril. We hope that this piece helps TPAs & Trustees such as bankers brainstorm how they can best partner to profit from this new trend.
While it would be great to have all the answers at hand about HSAs, it is very heartening that the IRS and Department of Treasury are being VERY constructive & cooperative. Their words and actions show that they are eager to make HSAs successful and also as simple as possible for individuals, employers and trustees such as banks. We are in almost daily interaction & brainstorming with them floating real-world issues & questions with them. The TPAs &Stop-Loss who will be attending the upcoming SPBA Spring Meeting will also be in face-to-face discussions with them too.
Many TPAs have been busy with many banks, and have brain-stormed with us. TPAs & Trustees need each other to be a player with HSAs (though some TPAs may qualify as trustees themselves). Below are our collaborative thoughts & issues that have been raised of how TPAs will work with banks on HSAs. As noted earlier, HSA is an evolving new frontier. IRS has been candid and consistent, and recognizes that good faith effort is the best that can be asked during the first months and years of this process. Factors, of course, are subject to change or clarification as IRS continues to work out its final positions, but IRS & Treasury have been very consistent and candid so far.
Why trustees such as banks need a TPA: Unlike an IRA, an HSA (except a spend-down roll-over) requires that there be a back-up high-deductible health plan (HDHP). Virtually no bank or trustee wants to get bogged down in the daily nitty-gritty tracking, processing, government compliance functions, etc. required to fulfill that requirement of having a health plan. Fortunately, TPAs are long-proven experts who thrive in that arena.
Why TPAs need a Trustee: Just like ERISA plans, TPAs process the claims, deductibles, eligibility, co-pay etc.. A trust is usually established in a bank. The TPA is often given signatory authority to shift money into the account and write checks on that trust account to pay claims. So, the fiduciary role is well-established. In an HSA, a repository for the money is also needed. In both cases, the main duty of the bank is to be sure that the body of money is safe. So, this is not a major difference in role. Actually, the work of the bank is easier, because unlike ERISA, in which each employer should have a separate trust, the bank may co-mingle all of the HSA funds into one trust vehicle or choice of vehicles.
Vocabulary caution: We in employee benefits are used to seemingly-simple vocabulary terms having many meetings. HSAs seem to cause the same confusion. An individual's HSA "account" is an electronic record of the balance of John Doe within the big overall HSA trust. Based on conversations with IRS & Treasury officials, it is not likely that the electronic records individual HSA "account" needs to be a full-fledged individual "bank account" with checks and such. As long as the money is safe and the individual may direct its use, it is OK. In practical terms, when TPAs & banks team up for HSAs, we think that TPAs will probably be the keepers of the per-individual "account" balances and transactions. Why? Because the TPA needs to do that anyway for purposes of running the HDHP (to determine what amounts count toward meeting the deductible amount of the HDHP). So, this falls into place nicely. Note: IRS is looking to the Simplified Employee Pension (SEP) group IRA model for employer sponsored HSAs, and the regular IRA as model for individual HSAs.
Reporting: Unlike ERISA, in which the main regulatory focus is on where the money is and is it safe, what are expected to be the reporting forms (similar to the MSA ones) are mainly interested in being sure that the individual did not get to put one extra penny into the HSA than is allowed. In employer-related HSAs, the TPA will, again, already be performing the middleman role. The TPA will be channeling any employer deposits, and, to assure accuracy & efficiency (not to mention avoiding future unintended tax consequences for the worker individual), will probably be the method by which any contributions are made to the HSA. Working with IRS & forms is not new to TPAs. Most prepare the 1099 forms on behalf of the plan or employer for payments made to medical providers. Many also complete and file the detailed Form 5500. Note: If, as indicated, IRS chooses the MSA reporting model for HSAs, the reporting will require the total contributions, distributions & deductions to the HSA. Given that the current HSA guidance does not require adjudication, the reporting form will presumably not require reporting on unqualified expenses. Even if an IRS form now or in future years should require a listing of the expenditures, the TPA is apt to already have the information as computation towards the HDHP deductible, or the TPA could adapt to quickly add this feature. So, data reporting should be a non-problem.
Who's got liability? >>Mostly the HSA individual owner. The three main enforcement areas will be (1). Is the individual eligible (mainly does he have a qualifying HDHP) (2) Was too much money placed into the HSA, and (3). Was any HSA money spent on items not allowed under IRC section 213? All of these are functions with which TPAs have long experience.
>>Banks will be responsible for the safety of the money. The bank (based on information from the TPA…or TPA on behalf of the bank) will prepare the reporting forms designating how much was put in for whom, and the amounts paid out.
>>Like lawyers, accountants, or any contract service provider, TPAs will have fiduciary duty and responsibility to fulfill their duties.
Will HSA accounts be high-transaction low-balance hassles? This question seems to separate the naïve from the knowledgeable among bankers. Why? Especially in employer-related HSAs of the kind TPAs will mainly bring to the bank, it is a big chunk of money and all goes into one (or choice of) investment vehicle in the bank. So, it is not like someone's checking account that averages $5. Even for the high-transaction users, the work will be channeled through the TPA, so instead of the bank needing to process a bunch of $10 withdrawals or checks, the TPA will make one combined transaction. (Again, this is nothing new. It is done every day this way when depositing or withdrawing money from an ERISA trust fund in the bank.)
A bank will have thousands of individuals per vehicle. (In the case of totally-individual or pay-down roll-over accounts, the bank would probably need to open a separate account per individual, in the same way 401(k) money is rolled over to an individual account when an employee terminates employment.)
Just as an insurance company holds huge amounts of money, because everyone does not have a claim at the same time, a bank's HSA trust will have the same kind of float. Also, there is already customer interest in using the HSA as a long-term health saving vehicle. (In other words, using out-of-pocket money now, in prime earning years, and building up a health nest egg for pre-Medicare early retirement or long term care, or whatever.) So, HSAs will represent large amounts of money.
Again, things could change as regulations evolve over coming months & years, but the IRS has been very open and consistent in expressing their thinking and eagerness to have HSAs be successful as soon as possible as well as efficient for those providing the services for them. We make no claim to expertise in banking law. And, as usual, nothing written or spoken from SPBA should be considered legal advice. Only a attorney competent in the relevant areas of law, and with all the facts & circumstances of each situation, can render a legal opinion. We merely wish to point out that there is almost nothing in the HSAs that is not a duty or function…or slight variation thereof…of what has been done for years together by TPAs & banks. As one major bank eager to proceed best summarized to us the banking/trustee side of HSAs, "After all, it's not rocket science!"