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HRAs and FSAs Post ACA: Be sure your plan is on track


In October, 2013 WageWorks issued Compliance Alerts concerning Health Reimbursement Arrangements (HRAs) and Health Flexible Spending Accounts (FSAs) and how the Affordable Care Act (ACA) and Notice 2013-54 changed the rules that employers must follow.

We continue to get questions that indicate a misunderstanding of the new rules. Since enrollment season is just around the corner this Compliance Alert reviews the rules for health FSAs offered through cafeteria plans and includes a reminder about permissible HRAs.

Health FSAs
Health FSAs must still be designed to be considered an “excepted benefit.” This is not a new rule that just started in 2014; there is a HIPAA excepted benefit rule that has been in place for many years. If the health FSA was an excepted benefit under the HIPAA certification requirement and the employer offered a group health insurance plan, the health FSA could then be exempt from offering COBRA if the health FSA was overspent. This rule takes on greater importance post-ACA.

There are just two rules to follow in order to offer health FSAs: 1) Employees must be eligible for employer-sponsored ACA-compliant group health plan coverage and 2) employer contributions to the health FSA are limited to $500 or, if more than $500, equal to the participant’s election.

Here’s an example of employer contributions to the health FSA that meet the Maximum Benefit condition:

  • A one-for-one employer match. (Employer $600, employee $600.)
  • An employer contribution of $500 or less. (Employer $500, employee $200.)

These scenarios do not meet the Maximum Benefit condition:

  • Employer contributes more than $500, if employee contributes $500 or less. (Employee election $400 and employer contributions $600.)
  • Employer contribution in excess of one-to-one match, if employee contributes more than $500. (Employer contributes $700, employee contributes $600.)

If the health FSA only allows for employee salary reduction contributions, then the only rule to consider is whether each participant in the health FSA is also eligible for the employer’s ACA-compliant group health plan.

ACA rules for health FSAs (HRAs and HSAs as well) include a requirement that over-the-counter drugs and medications be prescribed by a physician in order to be reimbursable. Health FSA salary reductions must also be limited to $2,500 for any cafeteria plan year. If the cafeteria plan is running on a short plan year, the $2,500 is prorated for each month in the short plan year.

Limited-purpose health FSAs may also be offered, perhaps in conjunction with Health Savings Accounts (HSAs), that provide for just vision and dental expenses. Vision and dental expense reimbursement plans are excepted benefits.

Starting on 1/1/2014 HRAs must be “integrated” in order to offer reimbursement of all medical, dental and vision expenses. Acceptable integration methods are divided into two categories 1) Minimum Value (MV) method and 2) MV not required method.

Both methods require:

  • HRA participants must be eligible for and participate in an employer-sponsored ACA-compliant group health plan. (An HRA cannot be integrated with individual policies.)
  • Employees may certify coverage under spouses’ ACA-compliant group health plan.
  • Participants must have the option, annually, to permanently opt out and waive future reimbursements.
  • HRAs should allow participants to forfeit remaining balances upon termination to allow Marketplace tax credits.

In addition, the MV method requires underlying group health plans to provide MV and that HRA benefits be available for all or a subset of IRS 213(d) eligible medical expenses and premiums for employer-sponsored group health plans. The MV not required method requires HRA benefits to be limited to co-payments, co-insurance, deductibles and premiums for group health plans and IRS Code Section 213(d) eligible medical expenses that do not constitute essential health benefits covered by the other group health plan.

Retiree HRAs and HRAs that provide excepted benefits such as vision and dental expenses may continue to be utilized by employers and do not have to meet the conditions noted above.

HRAs that are not integrated with an underlying ACA-compliant group health plan cannot continue. This includes HRAs that are integrated with individual insurance policies or that pay premiums for individual health insurance policies. These types of plans are not ACA compliant and carry a stiff penalty of $100 per day, per participant for every day they are in existence. That’s $36,500 a year due for each and every participant in a non-compliant plan.

However; ineligible HRAs, that were in place as of 1/1/2013, can be frozen with balances as of 12/31/2013 and unused funds “spent down.” No additional contributions are allowed to these plans after 12/31/2013. There is no time limit on the spend-down transition and it can also be utilized for participants that terminate employment.

Both health FSA and HRA waiting periods need to be coordinated with employer-sponsored group health plans. Ensure that both health FSA and HRA waiting periods are not shorter than the group health plan waiting period. ACA-compliant group health plans generally have a maximum 90-day waiting period prior to enrollment. Check both plan documents to ensure that employees are not eligible for HRAs or health FSAs prior to being eligible for group health insurance plans.

Last note—don’t forget about the latest, greatest feature for health FSAs—Carryover. Up to $500 of unused health FSA funds may be carried forward from one year to the next. You would need to update your plan document before the end of this current plan year in order for employees to take advantage of this great benefit. Contact your Relationship Manager or visit to learn more about health FSA Carryover.

Check with your Relationship Manager if you have questions about any of these important points.

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