Health Spending Account Plan Design
You have a great deal of latitude in designing a contribution schedule that specifically meets the needs of your organization. The contribution schedule may vary by occupation or seniority, and can be expressed as a specific dollar amount or percentage of earnings. Furthermore, the contribution schedule may be adjusted at the beginning of each calendar year. A budget worksheet is provided to help you customize the contribution schedule to suit the compensation structure of your organization. Designing a contribution formula that allocates your benefit budget according to your compensation strategy is critical to achieving the results you want from your benefit program.
A health spending account, structured as a private health services plan, may permit either unused deposits or unpaid claims to carry forward for one year. The carry-forward method must apply to all members of the health spending.
Deposit carry-forward method:
- Most commonly used carry-forward method.
- Contributions not paid out in claims carry forward one calendar year as the employee’s opening balance.
- Claims may be reimbursed from contributions made during the year the claim was incurred, or from contributions made during the prior calendar year.
- Claims may only be reimbursed from funds that were in the account during the year that the expense was incurred.
- This method encourages careful spending and accumulating a balance in case of large future expenses.
- Most employees carrying forward an account balance which makes it possible to be reimbursed for large expenses at the beginning of the calendar year.
Claim carry-forward method:
- Rarely used carry-forward method.
- Contributions not paid out in claims are refunded to the employer at the end of each calendar year.
- This method encourages year end spending of funds that would otherwise be refunded to the employer.
- Claims may be reimbursed from contributions made during the year the claim was incurred or from contributions made during the next calendar year.
- Claims not reimbursed may carry forward one calendar year.
- Claims may be reimbursed from funds that were in the account during the year that the expense was incurred or the next calendar year.
- Starting each calendar year with a zero balance results in most employees waiting to be reimbursed for their claims.