IRS issues integration rules for HRAs and FSAs

You can go some way toward meeting the Affordable Care Act (ACA) health care reform law’s requirements that your group plan provides minimum value and is affordable by setting up health reimbursement accounts (HRAs) or health flexible spending accounts (FSAs) for employees.

But according to new guidance, these accounts must be integrated into your group health plan. The guidance is effective for plan years beginning in 2014, but you may apply it to earlier plan years. (Notice 2013-54, IRB 2013-40)

Health reimbursement accounts

HRAs are considered group health plans, so they must meet the ACA’s market-reform requirements, including not imposing annual limits and providing free preventive care. HRAs don’t have to meet the market-reform requirements if they’re integrated into a group health plan that does. HRAs that are integrated into a group plan don’t have to share the same plan sponsor, the same plan document or file a single Form 5500.

HRAs are integrated with a major medical plan that provides minimum value if the following conditions are met:

  • You offer a group plan that provides minimum value
  • Employees with HRAs actually enroll in that group plan
  • The HRA is only available to those who are actually enrolled in the plan, regardless of whether that plan is yours (i.e., employees enroll in their spouses’ plans)
  • Employees can permanently opt out and waive future HRA reimbursements at least annually. Upon termination, either the remaining amounts in the HRA are forfeited or employees are allowed to permanently opt out and waive future reimbursements.

Similar requirements apply to HRAs that are integrated into a group plan that doesn’t provide minimum value. Instead of the plan providing minimum value, the benefits provided can’t consist solely of excepted benefits. In addition, HRAs must be limited to reimbursing co-pays, co-insurance, deductibles and premiums under the non-HRA group coverage, as well as medical care that doesn’t constitute essential health benefits.

IMPACT: Except for retiree HRAs, stand-alone HRAs are no longer permitted. In addition, HRAs can’t be integrated with individual policies, so funding HRAs, which employees then use to buy individual policies on an exchange won’t save you from free-rider penalties.

Health FSAs

FSAs are group plans that must comply with the ACA, but will be considered to provide only excepted benefits if you also make available a group plan that provides minimum value through a cafeteria plan, and the maximum FSA benefit payable doesn’t exceed twice employees’ salary reductions, or, if greater, $500, plus the amount of employees’ salary reductions. Health FSAs, therefore, can’t be offered outside of cafeteria plans anymore.

Employee assistance plans

In line with the W-2 reporting requirements, benefits provided under an employee assistance plan (EAP), are considered excepted benefits, and not subject to the ACA’s market reforms, if the EAP doesn’t provide significant benefits that could be considered medical care or treatment. Through the end of 2014, you may use any reasonable, good-faith interpretation of whether your EAP provides significant medical benefits.

The ABCs of HRAs, FSAs and HSAs

It can be difficult to pick your way through the alphabet soup of group health plan add-ons, such as HRAs, FSAs and health savings accounts (HSAs). To help you along, see this chart, which lists the characteristics of these accounts and how the health care reform law affects each.

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