The Patient Protection and Affordable Care Act had a significant impact on Flexible Spending Arrangement (FSA) contributions – employees can now only contribute $2,500 to a health FSA (although employers can contribute additional funds). Other FSAs such as those for commuter expenses and dependent care are unchanged.
The Department of Labor also recently issued new guidance on how the Affordable Care Act impacts Health Reimbursement Arrangements (HRAs). HRAs are generally a promise by an employer to pay for certain heath care expenses for employees or their dependents for the current benefit year up to a defined amount. Most HRAs allow the unused amounts to be rolled over to subsequent years, but unlike Heath Savings Accounts (HSAs), the employee loses access to the funds upon separation from the employer.
The three key points of guidance relate to the interaction of HRAs, and the Section 2711 of the Public Health Services Act (PHSA), which prohibits annual or lifetime benefit limits on group insurance. Under the new guidance, The Department of Labor states that an HRA must be “integrated” with a group health plan such that the combined benefit meets the requirements of the PHSA. An HRA that is offered apart from group health insurance (a “standalone” HRA”) does not comply with the prohibition on benefit limits under the PHSA.
In 2014, employees will not be able to use a standalone HRA to purchase coverage on the individual market and have it qualify as being integrated with the individual health coverage to satisfy the requirements of PHS Act section 2711.
If an employer offers an employee coverage that does satisfy PHS Act section 2711 but the employee declines to enroll in that coverage, then an accompanying HRA provided to that employee will not be considered integrated with the coverage and therefore will fail to satisfy the requirements of PHS Act section 2711.
Last, the Department of Labor indicated that HRA amounts credited prior to 1/1/13 or during 2013 could be used after 12/31/2013 to cover medical expenses without causing the HRA to fail compliance with the PHS Act section 2711. However, if the HRA terms in effect on January 1, 2013, do not prescribe a set amount or amounts to be credited during 2013 or the timing for crediting such amounts, then the amounts credited may not exceed those credited for 2012 and may not be credited at a faster rate than the rate that applied during 2012.
If HRAs are an important part of your consumer-directed health care strategy then you’ll need to assess whether or not your HRA qualifies as being integrated with the health coverage of each employee as just one of the many decisions you will have to make as you enter the compliance maze under Health Care Reform.
In contrast, Health Savings Accounts are relatively unscathed by health care reform. The threat that HSA-qualified health plans could not meet the actuarial value requirements of Obamacare have not materialized. Accordingly, HSAs remain not only viable, but a very effective way of helping employers curtail the growth in the costs of their benefit plans. HSA-qualified health plans generally mean lower premiums, and employers can realize significant tax savings by implementing an HSA program. Employers, that provide employees with the tools and education to encourage full participation in the consumer-directed healthcare experience, are realizing the benefits by increasing employee satisfaction while reducing health benefit costs.