Fiscal Intermediary

FISCAL INTERMEDIARY FREQUENTLY ASKED
QUESTIONS AND ANSWERS

Q. What is a fiscal intermediary?

A. A fiscal intermediary is an entity that performs payroll tasks, including tax and insurance withholding, for individuals and families using in-home independent providers who are not employed by an agency. The fiscal intermediary is not an employer of the independent provider.

Q. What will the fiscal intermediary do?

A. The fiscal intermediary will pay all independent providers for consumers who choose to use an independent provider. For independent provider who are “employees” of the consumer, the fiscal intermediary will make sure that appropriate taxes and insurance such as Social Security and unemployment are withheld and will complete and file all of the employer related forms required by the federal and state government. For workers who are independent contractors as determined by the IRS, the fiscal intermediary will pay the contractor the agreed upon rate and will manage federal and state taxes if requested by that independent contractor.

The fiscal intermediary will also pay other types of providers such as service workers who are employees of agencies. The fiscal intermediary will pay these providers the contract rate in effect with the Division at the time of service. In this case, the agency or provider and not the fiscal intermediary will ensure appropriate tax and insurance are withheld and required reports are filed.

Q. Which “independent providers” are being addressed?

A. An independent provider is an individual provider who does not work as an employee of an agency and is not a professional independent provider (e.g., therapist). In Arizona, Independent providers are certified by the Division, must be registered as an AHCCCS provider, and, once the fiscal intermediary is implemented, must sign and Individual Service Agreement with the consumer/family they serve. Independent providers are exempted from following the traditional Arizona procurement process in order to provide service and receive payment for service. The Arizona Provider Indemnity Program currently covers independent providers for personal liability insurance and will continue to do so under the fiscal intermediary program.

Q. Why is the Division Implementing a fiscal intermediary?

A. There are two primary reasons that the Division is implementing a fiscal intermediary. First, the fiscal intermediary is a tool for consumer direction, which allows individuals and families to manage their own care and supports and funding. Seventy-four percent of consumer directed programs across the country use an intermediary. Second, the fiscal intermediary ensures Arizona’s program is the compliance with state and federal laws.

This second reason for implementing a fiscal intermediary requires some explanation. It is the opinion of the IRS and unemployment officials that most in-home support service workers (who are called independent providers in Arizona) are not independent contractors. Rather they are somebody’s employees, Independent providers cannot be the Division’s employees because the legislature has not authorized these positions nor provided benefits for them. Moreover the Division does not hire, fire, or direct the service they perform. The IRS and federal and state unemployment officials would say most independent providers are employees of the individual/family because the individual and family hires, fires, and directs the work performed by the worker. There are some independent providers, however, whom the IRS may find are independent contractors.

Today, the Division pays independent providers in the home an hourly rate. The Division does not withhold taxes or insurance. Because unemployment and taxing officials believe most of these independent providers are employees, they will expect to be paid the appropriate taxes and insurance. The fact sets up a financial liability that must be addressed. Continuing with our current independent provider system could expose the Division and/or individuals and families to significant financial liability.

There is currently no mechanism in place to ensure that appropriate taxes and insurance are withheld from an independent provider who is not based with an agency. The fiscal intermediary will fulfill this function.

The fiscal intermediary will perform withholding and file tax forms on behalf of individuals and families. This is a lot of administrative work. The division wants to ensure that the burden does not fall on families.

It should be noted that most states have moved to a fiscal intermediary program where the individual/family is the employer in recognition of these tax and insurance interpretations. There are at least 83 consumer directed programs in place today across the states where the individual/family is the employer. Of these approximately 40% serve people with developmental disabilities.

Q. Who will be required to use the fiscal intermediary service?

A. All consumers who want to engage the services of an independent provider will be required to use the fiscal intermediary. When member directed support and personal budgets are implemented, all consumers using those services will be required to use the fiscal intermediary.

Q. Will the cost of receiving fiscal intermediary be met by reducing the amount of service authorized for individuals using the service?

A. The Division is committed to ensuring that the cost of the fiscal intermediary does not reduce the amount of service authorized to consumers.

Q. Will the independent provider experience a loss of payment?

A. The division is also committed to assuring that the net effect of implementing fiscal intermediary services and the associated cost does not result in a reduction in pay to independent providers. How this can be accomplished is complex and will require careful analysis and thoughtful implementation. Independent provider rates now in effect will be adjusted with implementation of the fiscal intermediary. One very positive outcome for independent providers who are employees of the consumer is that they will earn the credit they deserve toward Medicare and Social Security.

Q. What models of intermediary programs exist?

A. The majority of states that have implemented consumer directed programs use some type of intermediary to facilitate the use of their programs. According to a recent survey, 96 of 129 consumer directed programs use an intermediary. The four most common intermediary models are:

	A Fiscal Conduit Intermediary whose primary role is to disburse public funds via cash or voucher payments to consumers or representatives for them to manage.
	An IRS Employer Agent/Fiscal Intermediary whose primary role is to manage payroll on behalf of consumers and representatives for their consumer-employed service workers. Under this model, the consumer is typically the employer of record.
	A Supportive Intermediary provides a variety of supportive services to consumers and their representatives and, on a limited basis, to workers. Supportive services may include conduction assessments and reassessments, conduction skills and self-advocacy training, maintaining a worker registry and assisting consumers with recruiting and hiring support service workers. Typically this model is used in combination with one of the other models.
	An Agency with Choice Intermediary where the individual/family selects a worker, and then the agency hires them as an employee. This is the model that has been in place for the large agencies in District 1, such as Creative Networks, LLC. In this model, the agency is the employer of record of the support service workers that consumers and /or their representatives recruit or select.

Of the 96 consumer directed programs using an intermediary, 45% are Employer Agent, 21% are Agency with Choice, 12% are Fiscal Conduit and 13% are Supportive Intermediary. There are no programs where the state is the employer of record. The Division concurs with other states that the IRS Employer Agent/Fiscal Intermediary model is the most consistent with consumer direction while still complying with tax and insurance requirements. The fiscal intermediary program that will be implemented by the Division will pay both independent providers who are employees of the consumer and those who are independent contractors as determined by the IRS.

Q. How does the fiscal intermediary impact consumer choice?

A. The Division believes that the fiscal intermediary service option is the most effective at ensuring consumer choice and will also provide a necessary foundation for implementing the member directed support and personal budgets. Other states have found that consumers prefer the Employer Agent model to the Agency with Choice model.

Q. What will happen if the fiscal intermediary is not implemented?

A. If the Employer Agent fiscal intermediary is not implemented, the Division will need to adopt the Agency with Choice model to ensure that tax and insurance requirements for employees are net. It probably will not be possible to implement member directed support and personal budgets.

Q. What if consumers/families need help in using the fiscal intermediary or have questions about the program?

A. First, the packages of forms distributed by the fiscal intermediary will include clear instructions on how to complete and submit the forms and a description of the roles, rights, and responsibilities of the consumer/family and the fiscal intermediary. Second, the fiscal intermediary will work with the Division to develop a manual for support coordinators and consumer/families for training and reference. Third, the fiscal intermediary will establish a customer service system (a single access point), including a toll free number, that consumers/families can contact with any questions, such as how to find an independent provide, how to get an IRS determination regarding whether an independent provider is an independent contractor, how to fill out timesheets, what a certain form is for, how many units of service have not been used, and when independent providers will be paid.

Q. If the consumer/family is the “employer, “how will workers’ compensation be handled?

A. The fiscal intermediary will pay workers’ compensation premiums on behalf of consumer/families using the fiscal intermediary.

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