Foster Swift Health Care Reform Update
March 14, 2014
The Patient Protection and Affordable Care Act (“PPACA”) provides that a group health plan must not impose any annual limit on essential health benefits (the “Essential Health Benefits Rule”). A group health plan must also provide certain preventive care services without imposing any employee cost-sharing requirements (the “Preventive Services Rule”). A group health plan that qualifies as an “excepted benefit” or that has fewer than two participants who are current employees on the first day of the plan year is exempt from these Rules.
An employer-sponsored medical reimbursement plan is generally considered a group health plan under relevant law. Therefore, effective for plan years that begin on or after Jan. 1, 2014, a medical reimbursement plan must comply with the Essential Health Benefits Rule and the Preventive Services Rule unless certain requirements are met. The application of these Rules to certain types of medical reimbursement plans is briefly explained below.
New Health Reimbursement Arrangement Rules. A health reimbursement arrangement (“HRA”) is a group health plan that is funded solely by the employer and that reimburses employees for eligible medical expenses. An HRA must comply with the Essential Health Benefits Rule and the Preventive Services Rule unless it is (i) “integrated” with the employer’s major medical coverage; or (ii) otherwise exempt from the Rules (e.g., because the HRA qualifies as an “excepted benefit”). An HRA is generally considered “integrated” if reimbursements under the HRA are available only to those employees who are actually enrolled in the employer’s major medical plan (or in a major medical plan of a spouse’s employer) and if certain other requirements are met. An HRA that isn’t integrated must be terminated or be restructured in a way that satisfies the Rules.
New Health Flexible Savings Account Rules. A health flexible savings account (“health FSA”) is a group health plan that is generally funded by employee pretax contributions under an employer’s cafeteria plan and that reimburses employees for eligible medical expenses. (Employer contributions to a health FSA are also permitted.) A health FSA that is offered under a cafeteria plan must comply with the Essential Health Benefits Rule and the Preventive Services Rule unless it qualifies as an “excepted benefit.” A health FSA is an excepted benefit if (i) the employer offers group major medical coverage; and (ii) the maximum benefit that is payable to any participant under the health FSA does not exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, does not exceed $500 plus the amount of the participant’s salary reduction election). A health FSA that doesn’t meet these requirements must be terminated or restructured in a way that satisfies the Rules. (A health FSA that permits only employee pretax contributions will qualify as an excepted benefit. However, a health FSA to which an employer contribution is made may not qualify as an excepted benefit depending on the amount of the employer contribution.)
Employer Payment Plan Rules. Guidance that was published by the U.S. Department of Labor (“DOL”) defines an “employer payment plan” as an employer-sponsored group health plan that reimburses employees for the payment of individual health insurance premiums. An employer may reimburse employees directly for such premium costs, or permit employees to pay the premiums for individual health insurance coverage on a pretax basis through a cafeteria plan. The DOL guidance states that such arrangements will not comply with the Essential Health Benefits Rule or the Preventive Services Rule because such arrangements cannot be integrated with any individual health insurance policy. Therefore, employer payment plans that reimburse (or permit the pretax payment of) individual health insurance premiums are generally no longer permitted for plan years that begin on or after January 1, 2014. An employer is permitted, however, to forward after-tax premium payments for individual health insurance coverage to the appropriate insurer.
Employers are encouraged to review their medical reimbursement plans to confirm whether the plans are compliant with current law. Risks that arise on failure to comply with the new Rules include excises taxes that can be assessed by the Internal Revenue Service, civil action by the DOL, and participant lawsuits.
Please contact your Foster Swift employee benefits professional if you have any questions regarding whether your medical reimbursement plan is affected by these new Rules under PPACA.