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[September 8, 2006]

HCRA Spending Card During November Open Enrollment, sign up for the UC Health Care Reimbursement Account (HCRA) program – with new spending account card convenience in 2007.

**Remember** that you must re-enroll in HCRA each year, even if you have an account this year.

Under contract with the University, SHPS, Inc. administers HCRA for UC. The SHPS spending account card works like a debit card – but no PIN is needed. For spending account card transactions, the VISA® system provides electronic transfer of funds.

We all pay out-of-pocket health care expenses for ourselves and our dependents during the year – co-payments for services and prescriptions under our medical, dental, and vision plans; co-insurance and deductible plan expenses; costs associated with optional services and products; and over-the-counter drug and medical supply costs.

These expenses can be sizeable. On average, single individuals pay more than $1,000 a year in out-of-pocket expenses, while a family of four can spend more than $2,000 a year.

That's reason enough to sign up for a UC Health Care Reimbursement Account (HCRA) during Open Enrollment this year. HCRA is UC's health care flexible spending account (FSA). The major advantage of opening an FSA is that you set aside the money that you will have to pay anyway – but you do this on a pre-tax basis and can thus reduce your taxes considerably.

The way HCRA works offers some major advantages:
Because you carefully consider what your expenses are likely to be when you set up an FSA, you get an edge on taking charge of those expenses.

You contribute to your account by convenient pre-tax deductions each pay period, and can use up to the total annual amount you elected as early in the year as you need it.
Your deductions are taken before taxes, so you pay less tax and have more spendable income.
You can use your account to pay for any eligible health care expenses for yourself and your legal spouse, and – if claimed as tax dependents on your federal tax return – your dependents or domestic partner and domestic partner's children.
With the new spending account card that all employees enrolled in HCRA will receive in 2007, you'll have the added convenience of paying for expenses as you do with a debit card (but with no PIN!), and you won't have to pay cash up front and file claim forms for reimbursement.
With the spending account card, you'll have immediate access to your money. Many expenses that you pay with the card will be automatically approved at the point of service or sale. For some expenses, you'll be asked to submit receipts later for approval.
The IRS "use-it-or-lose-it" timeframe for FSAs has been extended, making it easier to access all your funds.

Here are some important details about these FSA advantages that you should know:
To set up a HCRA FSA, you need to look ahead and estimate what your out-of-pocket expenses will be in 2007. SHPS has a convenient interactive calculator to help you do this that you can access from the At Your Service HCRA website.

Taking stock of what your expenses will be, and preparing to pay for them, helps make you a better health care consumer and can help relieve the strain that rising health care costs can impose on your budget.
UC allows you to contribute up to a maximum of $5,000 a year to your FSA under IRS rules – if both you and your legal spouse are UC employees, you may each contribute up to $5,000. The minimum annual contribution is $180.
Once you determine your annual contribution amount, an equal portion of the total is deducted from your paycheck each pay period — before taxes — and deposited to your account. And, you have access to the full contribution amount from the very start of the plan year.
Because you put money into your account each pay period before taxes, the amount of income on which your taxes are based is lower, so you pay less tax. Your taxable income each pay period is lower, and the annual taxable income that UC reports to the IRS on your W-4 is lower. Thus, you save money by reducing your tax liability.
Although you cannot use spending account money to pay for your UC medical plan premiums (you already pay them tax-free if you participate in TIP), the amount you save on taxes can offset or mitigate increases, if any, in your premiums next year. You can estimate your potential tax savings with the calculator at the SHPS website.

EXAMPLE: This year, a single UC employee with no dependents who earns $35,000 a year contributes $1,500 before taxes to the HCRA FSA. From each monthly paycheck, the employee contributes $125.00 to the FSA – but, because it's pre-tax, take-home pay goes down only about $84 a month. At the end of the year, the employee has saved $490 in taxes – nearly $500 more spendable income.

You can pay for eligible health care expenses from your FSA account -- up to the maximum amount for which you've enrolled -- for yourself and your legal spouse, and -- if claimed as tax dependents on your federal tax return -- your dependents or domestic partner and domestic partner's children.

New in 2007: Everyone who signs up for HCRA during November Open Enrollment will receive a SHPS spending account card by the first of next year. The card can be used to pay for qualified health care expenses at participating providers' offices (doctors, dentists, vision care providers), drug stores, and merchants if they accept VISA®.

When you use the card, money is electronically transferred from your HCRA account, like a debit card (but without the hassle of using a PIN) to pay the health care provider or merchant. You won't have to pay with cash or checks, and you won't have to file any reimbursement claim forms.

In cases where you cannot use the card because debit and credit cards aren't accepted, you can pay out of pocket and then file a claim form with SHPS for reimbursement, just as participants have done in the past without the card.
Save your receipts: Although using the spending account card will allow you to pay for eligible health care expenses directly from your FSA, you will need to save your receipts in case SHPS requests a copy to substantiate your purchase. Many, but not all, spending account card payments in 2007 will be automatically authorized at the point of service or sale, so, after your card is swiped, you'll have nothing else to do.

In 2007, automatic card payment authorization will be provided for:
- Medical plan co-payments (for office visits and other services)
- Prescription drug co-payments at participating pharmacies and drug stores
- Dental plan payments (co-payments and co-insurance)
- Vision plan payments (co-payments and co-insurance)
- Qualified over-the-counter drugs and medical supplies purchased from Walgreen's, Drugstore.com, and Vision Direct
Keep in mind, however, that you can use the SHPS spending account card for any qualified health care expenses, whether or not the transaction can be authorized without a receipt. When you use the card for a qualified health care expense not set up for automatic authorization, SHPS will notify you later and request that you send them your receipt and complete a simple form. For this reason, you should keep ALL receipts when you use the card.
The IRS "use-it-or-lose-it" rule for FSAs, which previously required forfeiture of unused funds at the end of the account year, has been significantly changed. Now, you can carry forward funds that remain unused at the end of the year to pay for eligible expenses incurred up to March 15 of the next year. So, you have 141and#x2044;2 months rather than the standard 12 months to spend your account balance.

BUT – you still need to plan carefully and not over-estimate what your expenses will be. For extremely expensive procedures that you may be considering, such as LASIK eye surgery and other elective procedures, be sure that you are medically qualified for the procedure before including it when you determine the amount of your spending account.

Well, adding it all up, there's really no argument for not enrolling in HCRA, unless you are certain that you'll have less than $180 in out-of-pocket expenses next year.

UC will be sending out more information about HCRA and the spending account card through the November Open Enrollment period, including a special section in the mailer that you will receive in late October.

Make it a point to check the At Your Service HCRA website regularly.

And,visit the UC SHPS website, which gives more details about qualified health care expenses and is your portal to your FSA account information.

Take charge of your out-of-pocket health care expenses in 2007, and beyond.br> This information is a general overview of the UC HCRA FSA program, administered by SHPS, Inc. It is not inclusive, nor is it a guarantee of eligibility or payment. Official provisions, which govern, are in the Health Care Reimbursement Account (HCRA) Summary Plan Description, available online at atyourservice.ucop.edu. Those who enroll in HCRA will receive a detailed "welcome packet" from SHPS.