On Sept. 13, 2013, the Internal Revenue Service (IRS) and the
Department of Labor (DOL) issued technical guidance on how certain market reforms
under the Affordable Care Act (ACA) apply to health reimbursement arrangements
(HRAs), health flexible spending accounts (FSAs) and other similar
arrangements.
This guidance is contained in IRS Notice 2013-54 and DOL Technical Release 2013-03.
The Department of Health and Human Services (HHS) is also issuing guidance to
show that it agrees with the IRS’ and DOL’s interpretation.
The guidance applies for plan years beginning on or after Jan. 1, 2014, but can be applied for
all prior periods.
Annual Limits and Preventive Care
The ACA requires non-grandfathered group health plans to cover
certain preventive care services without imposing any cost sharing. For plan
years beginning on or after Jan. 1, 2014, the ACA prohibits group health plans
from placing annual dollar limits on the coverage of essential health benefits.
Prior guidance provided that an HRA integrated with other group
health coverage is not required to satisfy the annual limit restrictions if the
other coverage alone satisfies the ACA’s annual limit restrictions. The latest
guidance includes the following points:
·
An HRA will comply with the preventive care services
requirements if the group health plan with which the HRA is integrated complies
with the preventive care services requirements.
·
A group health plan, including an HRA, used to
purchase coverage on the individual market cannot be integrated with that
individual market coverage for purposes of the ACA’s annual dollar limitation
or preventive care services requirements. For example, a group health plan,
such as an employer payment plan, that reimburses employees for an employee’s
substantiated individual insurance policy premiums will fail to satisfy the
market reforms for group health plans because the plan:
o
Imposes an annual limit up to the cost of the
individual market coverage purchased through the arrangement; and
o
Cannot be integrated with any individual health
insurance policy purchased under the arrangement.
·
Only health FSAs that are offered through a Code
Section 125 plan (or cafeteria plan) are exempt from the ACA’s annual limit
prohibition. The DOL intends to amend its annual limit regulations to clarify
this exemption, applicable Sept. 13, 2013. (Note that these health FSAs must
comply with the annual $2,500 limit on health FSA salary reduction
contributions.)
·
Health FSAs that do not qualify as excepted
benefits will fail to meet the ACA’s preventive care services requirements
because they are not integrated with group health plans.
·
Unused amounts that were credited to an HRA
while the HRA was integrated with other group health coverage may be used to
reimburse medical expenses after an employee ceases to be covered by the other
group health coverage without causing the HRA to fail to comply with the ACA’s
requirements on annual limits and preventive care.
·
In general, an integrated HRA violates the ACA’s
annual limit prohibition if the group health coverage does not cover a category
of essential health benefits and the HRA is available to cover that category of
benefits and limits the coverage to the HRA’s maximum benefit. However, if the
group health coverage provides minimum value, there is no violation.
HRAs—Two
Integration Methods
The
IRS’ and DOL’s guidance includes two ways for an HRA to be
considered integrated with a group health plan for purposes of the annual
dollar prohibition and the preventive care services requirements. Under either
method, the HRA and the other group coverage are not required to have the same
plan sponsor or the same plan document, or to file a single Form 5500 (if
applicable).
Under both methods, an employee must be permitted to permanently
opt out of and waive future reimbursements from the HRA at least annually. This
opt-out feature is required because the HRA’s benefits generally will
constitute minimum essential coverage and would disqualify an individual from
claiming the ACA’s premium tax subsidy.
Employee Assistance Programs (EAPs)
Benefits under an EAP are considered to be excepted benefits that
are not subject to the ACA’s market reforms, but only if the program does not
provide significant benefits in the nature of medical care or treatment.
Premium Tax Subsidy
For purposes of the premium tax subsidy, the affordability and
minimum value requirements do not apply if an employee enrolls in any
employer-sponsored minimum essential coverage, including coverage provided
through a cafeteria plan, an employer payment plan, a health FSA or an HRA, but
only if the coverage does not consist solely of excepted benefits. If an
employee enrolls in any employer-sponsored minimum essential coverage, he or
she is ineligible for the ACA’s premium tax subsidy.
An HRA that has fewer than two participants who are current
employees on the first day of the play year (for example, a retiree-only HRA)
is also considered minimum essential coverage. As a result, a retiree covered
by a stand-alone HRA for any month will not be eligible for a premium tax
subsidy for that month.
Cafeteria Plans
Beginning in 2014, individual coverage through an Exchange cannot
be reimbursed or paid for under a cafeteria plan. For cafeteria plans that as
of Sept. 13, 2013 operate on a plan year other than a calendar year, this
restriction will not apply before the first plan year that begins after Dec.
31, 2013. However, individuals may not claim a premium tax subsidy for any month
in which they are covered by an individual plan purchased through an Exchange
as a benefit under a cafeteria plan.
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