In response to Roe v. Wade's overturn, fertility benefit providers are looking for new tools to ensure member access to their benefits, regardless of residence. A potential part of the solution? Providing direct access to funds through a health spending benefit like a health reimbursement arrangement (HRA).
But what are your health spending benefit options? Which programs best align with your strategy? And how do you ensure compliance? This guide will share best practices and helpful frameworks for answering those questions.
Health spending benefits overview
A health spending benefit is a program that gives program members access to funds for health-related expenses. They can be split into accounts that:
Offer tax advantages
Do not offer tax advantages
Most members and employers are interested in tax-advantaged accounts because of their potential tax savings, but their stricter regulations can become constrictive for benefit providers seeking to design a comprehensive program. Accounts without tax advantages cannot offer tax savings but are more versatile due to their fewer regulations.
Pre-tax accounts (also known as tax-advantaged accounts)
There are three main types of pre-tax accounts designed for qualified medical expenses (QMEs): flexible spending accounts (FSAs),* health reimbursement arrangements (HRAs), and health savings accounts (HSAs). Contributions to these benefits are considered tax-free (or pre-tax) as long as the account funds are used for qualified medical expenses.
*FSAs are technically arrangements, but are commonly referred to as accounts.
A note on HRAs
Unlike FSAs and HSAs, organizations can design general purpose HRAs to target specific member needs. This ability has earned it the nickname "specialty HRA," and made HRAs the favorite choice of organizations looking to design a benefit program that address for member out-of-pocket costs for fertility.
Accounts without tax advantages
Fertility benefit providers often offer non-tax-advantaged spending accounts due to their greater flexibility. There are two main non-tax advantaged spending accounts that fertility benefit providers use: directed spend or rewards programs. "Directed spend" refers to the technology used to direct member spending, but its name varies by industry: lifestyle spending accounts (employer benefits) and supplemental benefits (Medicare Advantage plans). All refer to a program where members are offered a spending account with spending controls.
The Case for Directed Spend
You want to provide funds for a product or service that is not considered a qualified medical expense. With a directed spend program, you can give members funds for important family-building services like adoption or surrogacy. Because you’re leveraging directed-spend technology and not using a tax-advantaged account, you can offer these funds and services even if they aren’t considered qualified medical expenses.
The Case for Rewards
You want to provide funds contingent upon a member completing a qualifying event. With a rewards program, you can congratulate a member who recently became pregnant or completed an adoption with funds for infant-related expenses (diapers, bottles). Because this is part of your reward program, you've remained compliant with the federal requirement that all program members have access to the same funds and services.
Fertility benefit providers can stack benefits to provide more comprehensive care and tax savings. For example, a provider can choose to offer an HRA for medically qualified expenses (e.g., temporary storage of eggs or sperm) and a directed spend program for expenses that are not considered medically qualified by the IRS (e.g., long-term egg freezing).
Qualified medical expenses for mental health
If you'd like to offer a pre-tax account, step one is familiarizing yourself with how the IRS defines “medical care” in U.S. Code § 213 - Medical, dental, etc., expenses
(1)The term “medical care” means amounts paid—(A)for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,(B)for transportation primarily for and essential to medical care referred to in subparagraph (A), - U.S. Code § 213
“Diagnosis, cure, mitigation, treatment, or prevention of disease”
The IRS uses the U.S. Code Section 213(d) definition for medical care to determine which expenses are qualified medical expenses (QMEs) for pre-tax accounts. It’s important to note the emphasis given on “diagnosis, cure, mitigation, treatment, or prevention of disease.” Because of this definition, services like diapers are not considered a qualified medical expense.
In the table below, we used primary sources to identify common expenses for fertility and whether they are considered a qualified medical expense. A helpful resource is https://fsafeds.com/, which is sponsored by the U.S. Office of Personnel Management and administered by HealthEquity, Inc for federal employees.
Recap of qualified medical expenses
Here are some noteworthy principles to consider:
To qualify, egg storage must be done for an upcoming medical need. Temporary storage of eggs is a qualified medical expense; egg storage for later use is not.
Gestational surrogacy expenses are not considered qualified medical expenses as they involve a third party.
Fertility benefit providers can provide access to funds for non-qualified medical expenses through a directed spend or rewards program.
Topics to consider
Here are a couple of questions that commonly come up in discussions with organizations about a fertility benefit.
Claims administration for health reimbursement arrangements
HRAs are employer arrangements where the member (employee) is reimbursed for qualified expenses. Administering claims can be done on two tiers:
Tier One: The fertility benefit provider takes the lead on administration, working with members and health plans on claim submissions and ensuring all claims are fully substantiated. Because the platform solution is not administering the claim, the platform does not have to be introduced to members, and a fully rebranded solution is possible. This option is advantageous for fertility providers who want to gain brand equity and own the member experience.
Tier Two: Fertility benefit provider defers to a platform solution, having the platform adjudicate all claims. In this scenario, the platform solution supports the administration of the benefit, so their name should be introduced to members. Tier two is a good solution for teams without the bandwidth to adjudicate claims for members.
Definition of disease
Because the definition of a qualified medical expense is contingent upon "disease: in the member or member's spouse," this can create challenges for programs wanting to provide an inclusive program for non-heterosexual couples. Benefit providers can provide a more inclusive program by offering a stacked benefit that funds both qualified and non-qualified medical expenses through tax-advantaged and non-tax-advantaged accounts.
Overview of use cases and scenarios
In this section, we’ll apply some of the learnings in the previous sections to potential scenarios for a (hopefully) helpful review.
HRA program for fertility benefits. Fertility Provider A wanted to offer a benefit account that provided fertility benefits and tax savings to their employers. They chose to offer an HRA that reimbursed members for fertility kits, IVF, and temporary egg storage.
Rewards program for infant expenses. Fertility Provider B wanted to offer a benefit account that emphasized care past the point of successful delivery. They also wanted to provide new parents with funds for infant-related expenses (diapers, cribs) and provide new mothers with post-delivery massages and acupuncture. Fertility Provider B decided to offer these services under a rewards program so they could successfully ensure their program was compliant (everyone had access to the same program) and seamlessly delivered.
Directed spend program + HRA for family building expenses. Fertility Provider C wanted to offer a comprehensive, inclusive family-building program that included funds for infertility treatment and other family-building options, including adoption and surrogacy. Because some expenses were considered qualified medical expenses and others were not, Fertility Provider C chose to stack a directed spend program on top of an HRA for their offering.
If I want to___, then ___.
Here’s a potentially helpful way of looking at fertility expenses and benefit accounts.
First Dollar is here to help
Providing a health spending benefit to your members is a very exciting solution but can also be daunting. But with the help of some experts and tech-friendly solutions, it can be accomplished with minimal stress.
And we'd love to help! We build software tools and APIs that enable organizations to design, launch, and manage DC-FSAs, FSAs, LP-FSAs, LSAs, HRAs, HSAs, rewards, supplementals, and more. We power the “health wallet” for all healthcare spending, acting as a single touch point for any consumer healthcare transaction. In our work, we leverage modern engineering advances and human-centered design principles to offer the most advanced solution on one card, app, and API.
For those interested in offering a health spending benefit designed for mental health expenses, we've created a similar guide.
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