Written by Jimmy Schulz, CPV, CVA
In September, the IRS and the Department of Labor issued updated guidance on certain market reform provisions under the Affordable Care Act (ACA), including the application of health reimbursement arrangements (HRAs). The guidance, which applies to plan years beginning on or after 01/01/14, is highlighted as follows:
- NOT permissible: HRA used to purchase individual coverage.
- NOT permissible: HRA used to purchase individual coverage through a public or private Exchange.
- Permissible, if integrated: HRA used to purchase coverage under a group plan.
- Permissible, in integrated: HRA used to purchase coverage under a group health plan in a private Exchange.
- Permissible: Stand-alone retiree-only HRA.
- Permissible: $500 carry-over for unused healthcare FSAs.
Stand-alone HRAs will not comply with the ACA
Stand-alone HRAs fur current employees are not allowed under the ACA as they will not satisfy the exclusion on annual dollar limits or the requirement that certain preventive services be provided without cost sharing. Accordingly, employers are prevented from using HRAs to reimburse employees for the purchase of individual health insurance policies, including those purchased through a health insurance Exchange.
HRAs are allowed when they are integrated with group health coverage. In most cases, an HRA is considered integrated with a group health plan and is therefore exempt from the ACA rules on annual limits and preventive services if all the following are true:
- The employer offers other group coverage.
- The employee covered by the HRA is enrolled in group coverage in addition to the HRA. In addition, the terms of the HRA must reflect that only employees enrolled in the other group coverage are eligible for HRA benefit.
- HRA reimbursements must be limited to one or more of the following: copayments, coinsurance, deductibles and premiums under the group coverage, and medical care that does not constitute an “essential health benefit” under the ACA. Note, this requirement does not apply for group coverage that supplies at least “minimum value” (i.e. coverage with at least 60% actuarial value).
- Employees and former employes must be able to choose, at least annually and upon termination, to permanently opt out of the HRA.
An HRA will not be considered integrated if it is paired with individual market coverage (rather than coverage under a group policy) or with an employer plan that provides coverage through individual market policies. This means that HRAs or Employer Payment Programs (EPPs) designed to reimburse the cost of individual coverage will no longer be allowed.
Stand-alone HRAs for early retirees
Stand-alone HRAs for early retirees continue to be allowed and will be considered minimum essential coverage in satisfaction of the ACA’s individual mandate. Although a retiree that has money available in an HRA will not have to pay the individual mandate penalty, they will not be eligible to receive the associated premium tax credit for individual coverage in the Marketplace. Employer payment plans that reimburse retirees for health premiums would also be excluded from ACA mandates under the retiree-only plan rule.
- ACTION: Because HRA coverage establishes minimum essential coverage, which means retirees are ineligible to receive premium assistance through a health insurance Exchange, consideration should be given to adding an opt-out/waiver right, even though the feature is not required from a legal standpoint.
$500 Carryover for Unused Healthcare FSAs
In addition to the guidelines announced for HRAs, the IRS has announced an exception to the longstanding “use or lose” rule for healthcare flexible spending account (FSA) plans. Under the exception, if you have an unused balance in your FSA at the end of the plan year, you can cover up to $500 of that unused balance the following year.
Subject to the $500 limit, the carryover privilege can be used to cover qualified out-of-pocket medical expenses incurred any time during a subsequent plan year. The carryover amount does not count against or reduce the healthcare FSA contribuion cap for the subsequent year ($2,500 for 2014). If desired, your company can specify a lower carryover limit than the $500 maximum. In any case, the same carryover limit must apply to all participating employees.
A plan that has a carryover provision cannot also provide a grace period that falls within the plan year to which unused amounts can be carried over. For example, a calendar-year healthcare FSA plan that is amended to permit a carryover to 2014 of unused 2013 balances (up to the $500 limit) cannot have a grace period that extends into 2014. However, a calendar-year plan that does not allow a carryover until 2015 (of unused 2014 balances) can have a grace period for the 2013 plan year that extends through as late as March 15, 2014.
The information provided above is a very brief summary of the extensive provisions outlined in the ACA guidance released in September. For full details, please refer to IRS Notice 2013-54 and DOL Technical Release 2013-03.
All employers, regardless of the type of group health plan they provide (or don’t provide), are encouraged to contact a trusted employee benefits specialist for specific guidance related to their unique situation. As always, our team of professionals is here to help. Should you have any questions on how the ACA will affect you or your business from a financial perspective, please give our office a call at (402) 423-4343.