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Putting the Pieces Together: How the ACA Impacts Health Reimbursement and Flexible Spending Arrangements

November 20, 2013
By: Eric E. Kinder

Employers responding to the market reforms contained in the Affordable Care Act (“ACA,” also referred to as ObamaCare) are trying to grasp how it treats some current arrangements, such as health reimbursement arrangements (HRAs) and flexible spending arrangements (Health FSAs). These features are popular in many employer-sponsored benefits plans. The Departments of the Treasury, Health and Human Services, and Labor are developing coordinated regulations on these issues and have recently adopted a notice to address many concerns. 

 
Within an HRA, an employer reimburses an employee for certain medical care expenses incurred by the employee (or spouse, child or other dependent). These reimbursements are generally excludable from the employee’s income. Under the ACA, if an HRA is integrated with a group health plan that complies with the ACA’s annual dollar limits prohibition, then the employer may limit the benefits under the HRA. The government has set forth two different methods to assist employers in determining whether an HRA is integrated with a group health plan. 
 
The difference between these two methods is whether the dollar figure of the HRA is capped. An integrated HRA that imposes an annual limit is in violation if the health plan with which the HRA is integrated does not cover a category of essential health benefits and the HRA would cover that category of essential health benefits.
 
First, an HRA with annual limits is integrated with a group health plan where
  • The employer offers a group health plan that does not consist solely of excepted benefits (in other words, it offers major medical coverage);
  • The employee receiving the HRA is actually enrolled in a group health plan (whether employer-sponsored or not);
  • The HRA is only available to employees who are enrolled in non-HRA coverage regardless of the source;
  • The HRA is limited to reimbursement of co-payments, co-insurance, deductibles and premiums, as well as medical care that is not an essential health benefit under the ACA; and
  • The employee is permitted to permanently opt out of and waive future reimbursements from the HRA on an annual basis and, upon termination of employment, either any remaining amounts of the HRA are forfeited or the employee is permitted to opt out and waive future benefits.
Second, an HRA that is not limited with respect to reimbursements is integrated with a group health plan where
  • The employer offers group health coverage to the employee that provides minimum value under the ACA;
  • The employer receiving the HRA is actually enrolled in a group health plan that provides minimum value (regardless of the source);
  • The HRA is available only to employees who are actually enrolled in minimum value health coverage; and
  • The employee is permitted to permanently opt out of and waive future reimbursements from the HRA on an annual basis and, upon termination of employment, either any remaining amounts of the HRA are forfeited or the employee is permitted to opt out and waive future benefits.

Therefore, employers offering an HRA may continue to do so only if it meets one of the two standards set forth above. HRAs can be valuable incentives to further decrease the cost of health care to employees; however, employers that don’t want to provide an unlimited sum must set up the HRAs per the above criteria.

 
The ACA levies few implications on Health FSAs, which are designed to reimburse employees for medical care expenses (other than premiums). In general, Health FSAs are proper if they provide only excepted benefits for an employee and the FSA is set up so that the maximum benefit payable to any participant does not exceed two times the participant’s annual FSA salary reduction. 
 
As always, issues under the ACA are constantly moving. Please feel free to contact either Eric Kinder or Erin Jones Adams regarding questions you may have regarding the ACA.
 
Labor & Employment Law
Eric E. Kinder
304.340.3893
ekinder@spilmanlaw.com