HRB 83 - Impact of ACA on HRAs, Health Care FSAs, and Other Employer Health Care Arrangements
Released September 20, 2013I Download as a PDF September 20, 2013 --
The Affordable Care Act (ACA) has raised many questions with regard to account-based plans, such as Flexible Spending Accounts (FSAs) and Health Reimbursement Arrangements (HRAs). Specifically are these types of account-based plans obligated to comply with the market provisions of the ACA, such as the requirement to cover preventive services without cost share and the prohibition against annual limits. The imposition of these types of provisions, of course, is contrary to the nature of account-based plans.
On September 13, 2013, The Department of Labor (DOL) issued Technical Release No. 2013-03 and the IRS issued Notice 2013-54 addressing some of these issues.
Without getting into all of the details of these rules, the following is an overview of these releases. In a nutshell, the technical releases affirm prior guidance (see CBIZ HRB Sub-Regulatory Guidance and FAQs Issued, 1/25/13), that an HRA cannot be used to purchase individual coverage through the marketplace. In fact, no form of pre-tax contribution, whether through an HRA, FSA, or other premium payment, can be used to purchase individual coverage.
An HRA can, on the other hand, be integrated with a group plan and if the HRA is properly integrated in either two methodologies described below, the HRA itself will not be required to comply with market reforms. The two types of integration are known as minimum value integration and no minimum value integration.
In both methodologies, the HRA can only be available to individuals actually covered by an ACA compliant plan. For both methodologies, the ACA compliant plan can be that of the employer sponsoring the HRA (the individual’s employer) or it can be a plan offered by another employer, such as a spouse’s employer. Also for both methodologies, the individual must be given the opportunity, at least annually, to permanently waive participation in the HRA. Presumably, the reason for this requirement is to allow the individual to decline the coverage and presumably become eligible for premium assistance through the marketplace.
In the no minimum value integration, the HRA is limited to reimbursing co-pays, co-insurance, deductibles, and premiums of the ACA compliant plan with which the HRA is integrated. In addition, the HRA may reimburse medical expenses that do not qualify as essential health benefits.
In the minimum value integration, the ACA compliant plan with which the HRA is integrated must meet minimum value (MV) standard. Minimum value means that the plan covers at least 60% of the cost of medical services. Unlike the no minimum value HRA, it can reimburse any medical expense permitted by IRC §213(d).
Retiree Only HRAs
This guidance affirms previously issued regulations that a retiree-only HRA, i.e. an HRA that only covers retirees who do not have current employment status, is exempt from the market provisions of the ACA. Further, the guidance affirms that the HRA qualifies as minimum essential coverage. A retiree covered by this type of HRA would be prohibited from receiving premium assistance through the marketplace since the HRA qualifies as minimum essential coverage.
This guidance affirms that an excepted FSA is not subject to the market reform provisions of the ACA. To be an excepted FSA, the FSA must:
- Only reimburse dental or vision expenses;
- Cover fewer than two participants who are active employees; or
- Meet the maximum benefit test. What this means is that the maximum benefit available cannot exceed two times the salary reduction election; or, the salary reduction election plus $500, whichever is greater. In addition, the FSA must meet an availability test. What this means is that the participants in the FSA must also be eligible for a health plan that is subject to HIPAA.
An FSA that is not excepted is, in fact, subject to the market provisions of the ACA.
Additional §125 Issues
Generally, the ACA prohibits the use of pre-tax dollars through an IRC §125 plan to buy individual policies through the marketplace. Some states, such as Massachusetts, have a law allowing pre-tax contributions to be used for the purchase of coverage through a marketplace. This guidance affirms that these pre-tax contributions can continue until the plan anniversary occurring on or after January 1, 2014, at which time this practice will no longer be allowed.
Finally, this guidance addresses employee assistance programs, affirming that an employee assistance program will not constitute minimum essential coverage as long as it does not provide significant medical benefits. Future guidance defining what constitutes significant medical benefits is anticipated.
What should an employer do?
- If applicable, cease reimbursing individual policies on a tax-favored basis.
- If you have or intend to have an HRA, make sure it is integrated as described above. Specifically, make certain it is only available to individuals actually enrolled in ACA compliant coverage.
- Amend the HRA to include an opt-out provision.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.