Impact of the ACA on HRA’s and Cafeteria Plans for 2014

Health Reimbursement Arrangements (HRAs) are, in general, considered group health plans as defined in the Affordable Care Act (ACA) and are subject to coverage mandates on such plans. The Internal Revenue Service (IRS) and Department of Labor (DOL) recently issued guidance that addresses the application of two particular ACA mandates to HRAs and health flexible spending accounts (FSAs). Both the IRS and DOL concluded that an HRA that is subject to the annual limit prohibition and preventive care requirement will not be able to comply with these mandates. Accordingly, an HRA either needs to be designed to be exempt from the ACA mandates or must be amended to not allow current funding, but allow prior funding to be used for appropriate expenses.

Although an HRA cannot comply with the annual limit prohibition and the preventive care requirement, it might be possible to design an alternative, such as a Section 105 medical expense reimbursement plan. Such a plan would likely need to do two things: cover all preventive care without cost sharing and without any annual limits; and impose no annual limits on any other “essential health benefits” covered under the plan.

The recent guidance addressed the impact of the ACA on health FSAs offered through a Section 125 cafeteria plan. As with HRAs, health FSAs are, in general, considered group health plans for purposes of the ACA, particularly the preventive care requirement. The IRS and DOL concluded that a health FSA that is subject to the preventive care mandate will not be able to comply with it. Accordingly, a health FSA either needs to be designed to be exempt from the ACA mandates or must be terminated.

Click here to read more about the effective date, exempt HRAs, Frozen HRAs, HRAs and Individual Medical Insurance Policies, Exempt Health FSAs, and other types of individual policy arrangements.

Q & A: Using Contributions to Purchase Coverage

Question and Answer: Using Contributions to Purchase Coverage

Question: Can an employee use a contribution through either a cafeteria plan or HRA to purchase unsubsidized individual health insurance coverage on a public exchange?

Answer:
Just focusing on the rules regarding eligible expenses, an HRA can reimburse premiums for coverage obtained through an exchange. This is true regardless whether the cost of the coverage is subsidized. Of course, if the participant does receive a subsidy, only the portion of the premium actually incurred by the participant (i.e., the portion not covered by the subsidy) can be reimbursed.

The rule is different for cafeteria plans. Such premiums cannot be paid on a pre-tax basis through a cafeteria plan. Section 125 has been amended to specifically provide that coverage issued through an exchange is not a qualified benefit that may be offered through a cafeteria plan unless the employer is providing group coverage through the exchange (i.e., through the SHOP program). The rule under Section 125 applies regardless of whether the individual receives a subsidy.

-Insight courtesy of Scott Wold, Attorney, Hitesman & Wold P.A.