Health care reform through the Patient Protection and Affordable Care Act of 2010 (PPACA) will have sweeping changes to the health care industry. Flexible benefit plans, as well as Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs), have also been affected.
It is important to note, this communication is a summary of some key pieces of the legislation applicable to flexible benefit plans, HRAs and HSAs. It is not intended to describe all details of the legislation, to identify all new requirements or to provide legal advice regarding the law's application to a specific employer or its plans. Agency guidance is expected on many pieces of the legislation, including those described in this article.
The guidance may impact some of the information provided in this communication. Employers should seek the advice of legal counsel regarding their particular situations.
The first change, effective for plan years beginning after September 23, 2010, is a requirement for employers to provide coverage on your health plans for dependents to age 26 (provided that your plan currently provides coverage to dependents). For plan years before 2014, "grandfathered plans" are not required to cover a child who has coverage available under an employer-sponsored plan other than through the child's parent (e.g., through the child's own employer or a spouse's employer). Your health FSA plan is most likely exempt from this rule however, for ease of managing your plans you may want to define dependents in your health FSA to allow for coverage of adult children to age 26. A change to the tax code made by PPACA allows health FSAs to provide such coverage. If you offer a Health Reimbursement Arrangement (HRA) Plan it may or may not be exempt from this rule.
Effective January 1, 2011 Flexible Benefit Plans, HRAs and HSAs will no longer be able to reimburse for over-the-counter (OTC) medicines (except insulin) without a prescription. The PPACA amended the law to only allow reimbursements for "prescribed" medicines and drugs—the only exception to the "prescribed" requirement is insulin. It is important to note that the Jan. 1, 2011 effective date also applies to plans that have the grace period. Therefore, whether or not your plan is a calendar year or non-calendar year plan and whether or not your plan has a grace period, OTC medicines and drugs purchased after Dec. 31, 2010 will not be reimbursable without a physician's prescription. OTC medicines and drugs purchased before Jan. 1, 2011, will be reimbursable through your plans run-out period.
During the past several years, many flexible spending accounts utilized a debit card to allow for easier processing of claims for both the employee and the third party administrator. With the new regulations, the OTC items that may be purchased with a flexible spending debit card will be limited to non-medicine or non-drug OTC items such as bandages, blood sugar test kits and test strips.
OTC items that cannot be purchased using a debit card include:
- Acid Controllers
- Allergy and Sinus Products
- Antibiotic Products
- Anti-Diarrheal Products
- Anti-Gas Products
- Anti-Itch and Insect Bite Products
- Antiparasitic Treatments
- Baby Rash Products
- Cold Sore Remedies
- Cough, Cold and Flu Remedies
- Creams/Ointments
- Digestive Aids
- Feminine Anti-Fungal/Anti-Itch Products
- Hemorrhoidal Preps
- Laxatives
- Motion Sickness Products
- Pain Relief Products
- Respiratory Treatments
- Sleep Aids and Sedatives
- Stomach Remedies
These expenses must be submitted manually for reimbursement, along with the prescription.
Another change, effective January 1, 2011, is an increased penalty for non-medical expense withdrawals from an HSA. This penalty has been increased to 20 percent. The HSA participant will be responsible to report these nonmedical expenses and pay the penalty.
Effective January 1, 2013, pre-tax salary reduction contributions to medical reimbursement accounts in flexible benefit plans will be limited to $2,500 per taxable year.
Although, they are not health plans, Adoption Assistance Plans were also addressed in health care reform. For those employers that offer an Adoption Assistance Plan effective March 23, 2010, the annual maximum benefit for both the tax credit and the employer sponsored plan benefit was increased to $13,170.00 for 2010 (this amount will be indexed annually). The sunset date on these benefits has also been extended to December 31, 2011.
Also effective January 1, 2011, small employers' cafeteria plans can qualify as simple cafeteria plans and avoid the nondiscrimination requirements of a traditional cafeteria plan under various IRS regulations.
An employer is eligible to establish a simple cafeteria plan if it had an average of 100 or less employees during either of the two preceding years. After the simple cafeteria plan is established, the employer may continue to sponsor the plan even if it fails to satisfy this maximum employee requirement in subsequent years. This exception does not apply if the employer has an average of 200 or more employees during any year proceeding such subsequent year.
A simple cafeteria plan must make a contribution to provide benefits to each qualified employee, in an amount equal to:
- A fixed percentage (not less than 2 percent) of the employee's compensation for the year, or
- An amount not less than the lesser of:
(a) Six percent of the employee's compensation for the plan year, or
(b) Twice the amount of the salary reduction contributions of each qualified employee.
A simple cafeteria plan must also meet minimum eligibility and participation requirements. The requirements are met if all employees who work at least 1,000 hours for the previous plan year are eligible to participate and all employees have the same election rights under the plan. Certain employees may be disregarded in applying these requirements.
Watch closely for changes resulting from health care reform. These changes are many, varied and impact a multitude of areas for employers. Most of these changes will require revisions to your Plan document and Summary Plan Description (SPD).
