Guide Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side Comparison, 2013

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The final section of the report coversparticipation levels in these accounts. The report will be updated when relevant statutory orregulatory changes occur, when new data become available, and as Congress considers issuesassociated with these accounts. Congressional Research Service. The second section detailschanges to the accounts effective over the next two years that were enacted by the PatientProtection and Affordable Care Act P.

The third section investigates theparticipation rates in each account type. Current LawThe text in this section provides summaries of each account as of June Although theaccounts differ in many ways, they each provide tax savings to the account holders. Table 1provides a more detailed side-by-side comparison of the laws and regulations governing eachaccount.

Flexible Spending AccountsFSAs are employer-established arrangements that reimburse employees for medical and dentalexpenses not covered by insurance or otherwise reimbursable. Employees choose how much to put into their accounts, and this amount can vary from yearto year. The entireannual amount of an FSA must be made available to employees at the beginning of the year. While compensation received as wages is subject to income taxes, as well as Social Security andMedicare taxes, compensation received as FSA contributions is not subject to these taxes.

SocialSecurity and Medicare together are known as employment taxes. For this reason, employees whoanticipate having health expenses not covered by insurance may prefer FSAs over monetarywages.

Looking Under the Hood of the Cadillac Tax

Congressional Research Service 1. Tax-Advantaged Accounts for Health Care Expenses: Side-by-Side ComparisonFSAs funded by salary reductions are governed by Section of the Internal Revenue Code,which exempts contributions from taxes despite the fact that employees have the choice to receivetaxable wages.

As is the case with FSAs,contributions are subject to neither income nor employment taxes. Inaddition, funds must be used for qualified medical expenses as defined by the IRC. Employersmay restrict the types of medical and health services that are eligible for reimbursement. Forexample, an employer may choose not to reimburse expenses associated with acupuncturetreatments.


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Also unlike FSAs, reimbursements can be limited to amounts previously contributed. Unused balances may be carried over indefinitely, though employers may limit the aggregatecarryovers. HRAs are governed by Section of the Internal Revenue Code, which allows health planbenefits used for medical care to be exempt from taxes, and Section of the Code, whichallows employer contributions to those plans to be tax-exempt. Unlike the FSAs and MSAs discussed below , they areestablished by individuals with an insurance plan meeting certain criteria.

An individual maypurchase an HSA-qualified insurance plan through the individual insurance market. For thoseindividuals with employer-sponsored insurance, the employer must offer a HSA-qualified plan inthe small group or large group insurance market. Therequired level of deductible varies over time with the cost of living. There are other criteria, including that the plan holder have no other health insurance policy, withsome exceptions. Congressional Research Service 2.

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On theother hand, HSA holders can draw funds for their accounts even if they are not permitted tocontribute. HSAs carry significant tax advantages. Contributions made by employers are exempt fromincome and employment taxes. Account owners may deduct contributions they make fromadjusted gross income. Rule-based expert systems and robotic process automation, for example, are transparent in how they do their work, but neither is capable of learning and improving. We encountered several organizations that wasted time and money pursuing the wrong technology for the job at hand.

Acquiring this understanding requires ongoing research and education, usually within IT or an innovation group. In particular, companies will need to leverage the capabilities of key employees, such as data scientists, who have the statistical and big-data skills necessary to learn the nuts and bolts of these technologies. Strive to have a high percentage of the former.

If you expect to be implementing longer-term AI projects, you will want to recruit expert in-house talent. Either way, having the right capabilities is essential to progress. Given the scarcity of cognitive technology talent, most organizations should establish a pool of resources—perhaps in a centralized function such as IT or strategy—and make experts available to high-priority projects throughout the organization. As needs and talent proliferate, it may make sense to dedicate groups to particular business functions or units, but even then a central coordinating function can be useful in managing projects and careers.

The next step in launching an AI program is to systematically evaluate needs and capabilities and then develop a prioritized portfolio of projects. In the companies we studied, this was usually done in workshops or through small consulting engagements.

It’s unclear what this means for other areas of health spending

We recommend that companies conduct assessments in three broad areas. The first assessment determines which areas of the business could benefit most from cognitive applications. The second area of assessment evaluates the use cases in which cognitive applications would generate substantial value and contribute to business success.

Start by asking key questions such as: How critical to your overall strategy is addressing the targeted problem? How difficult would it be to implement the proposed AI solution—both technically and organizationally? Would the benefits from launching the application be worth the effort? Next, prioritize the use cases according to which offer the most short- and long-term value, and which might ultimately be integrated into a broader platform or suite of cognitive capabilities to create competitive advantage.

The third area to assess examines whether the AI tools being considered for each use case are truly up to the task. Other technologies, like robotic process automation that can streamline simple processes such as invoicing, may in fact slow down more-complex production systems.

And while deep learning visual recognition systems can recognize images in photos and videos, they require lots of labeled data and may be unable to make sense of a complex visual field. In time, cognitive technologies will transform how companies do business. Because the gap between current and desired AI capabilities is not always obvious, companies should create pilot projects for cognitive applications before rolling them out across the entire enterprise.

Proof-of-concept pilots are particularly suited to initiatives that have high potential business value or allow the organization to test different technologies at the same time. If your firm plans to launch several pilots, consider creating a cognitive center of excellence or similar structure to manage them. This approach helps build the needed technology skills and capabilities within the organization, while also helping to move small pilots into broader applications that will have a greater impact.

Pfizer has more than 60 projects across the company that employ some form of cognitive technology; many are pilots, and some are now in production. The global automation group uses end-to-end process maps to guide implementation and identify automation opportunities. The company has successfully implemented intelligent agents in IT support processes, but as yet is not ready to support large-scale enterprise processes, like order-to-cash.

The health insurer Anthem has developed a similar centralized AI function that it calls the Cognitive Capability Office. As cognitive technology projects are developed, think through how workflows might be redesigned, focusing specifically on the division of labor between humans and the AI.

In the new system, cognitive technology is used to perform many of the traditional tasks of investment advising, including constructing a customized portfolio, rebalancing portfolios over time, tax loss harvesting, and tax-efficient investment selection. Advisers are encouraged to learn about behavioral finance to perform these roles effectively. Vanguard, the investment services firm, uses cognitive technology to provide customers with investment advice at a lower cost.

Its Personal Advisor Services system automates many traditional tasks of investment advising, while human advisers take on higher-value activities. By automating established workflows, companies can quickly implement projects and achieve ROI—but they forgo the opportunity to take full advantage of AI capabilities and substantively improve the process.

Most cognitive projects are also suited to iterative, agile approaches to development.

1. Understanding The Technologies

To achieve their goals, companies need detailed plans for scaling up, which requires collaboration between technology experts and owners of the business process being automated. Because cognitive technologies typically support individual tasks rather than entire processes, scale-up almost always requires integration with existing systems and processes.


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Indeed, in our survey, executives reported that such integration was the greatest challenge they faced in AI initiatives.