ACA Impact on Health FSAs and HRAs Q&A the following questions were

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1 ACA Impact on Health FSAs and HRAs Q&A the following questions were asked during the two webinar sessions in (January, 2015) Do SBCs need to be provided to retirees who have a Retiree Only HRA? Yes Is there any movement to eliminate the 250 minimum for employers including costing on W2s (meaning employers that issue less than 250 W-2s don t have to report the cost of health coverage on the W-2)? Not that we are aware of. We offer an HDHP-HSA plan to our eligible participants. We also offer a limited FSA for those who are eligible for our group health plan but choose not to have coverage. Listening to everything you're saying, are we OK with offering the FSA for eligible healthcare expenses? Based on the information provided, it sounds like you have everything set up appropriately. If you are asking if you can add a standard Health Care FSA, the answer is yes, but it can only be offered to individuals who are eligible for your health insurance. And if someone who elects your HDHP also elects a standard Health Care FSA, that person would be ineligible to make or receive HSA contributions. Also if you do offer the standard Health Care FSA, you could not give individuals enrolling in the standard Health Care FSA more than $500 in employer contributions unless that individual actually enrolls in the group medical plan or that individual matches or exceeds the employer contribution. We are a self-funded medical plan with an integrated HRA that reimburses deductible & coinsurance only. Our deductible is $1,000 and co-insurance $2,500. How would the HRA affect the ACA out-ofpocket (OOP), which most people may hit with prescription expenses but not medical expenses? The underlying health plan is what has to comply with the maximum ACA OOP, which includes the deductible, co-insurance and prescription out-of-pocket expenses. The HRA can be used to reimburse toward any or all of the medical plan s OOP but does not have to reimburse toward specific expenses, like prescriptions. However, many plans now include the prescriptions in the deductible and coinsurance and not as a specific expense. If your plan still has prescriptions as their own expense type, you don t have to apply HRA dollars to those expenses.

2 Do children have to be covered until the end of the calendar year that they turn 26? Can an employer choose to end at end of month that they turn 26? There are two ACA provisions at work here. One provision is that the eligible child must be covered until the end of the month they turn 26 for a major medical health plan, although the health plan can cover them to the end of the calendar year. The second provision is that an eligible child can be provided tax free reimbursement from a health plan until the end of the year they turn 26. For the Health Care FSA, the child's expenses are eligible for pre-tax reimbursement until the end of the calendar year they turn 26. I am getting info that one employee employers are allowed to still use an HRA. Can you comment on this please? Any employer can sponsor and maintain an HRA for its employees. If that plan covers fewer than 2 active employees it is an excepted benefit under HIPAA, meaning it need not follow the portability rules of HIPAA. However, what I think you are referring to is marketing from some vendors that if the HRA only covers one active employee that the HRA can reimburse the premiums for an individual medical insurance plan for that employee because the HRA is an excepted benefit. That is incorrect. IRS Notice and subsequent guidance state that the HRA is a group health plan, even if it only covers one employee and cannot reimburse individual medical insurance premiums for an active employee. We have a retiree only HRA. Do they need to be provided the SBC? Upon retirement, we set-up the HRA for them. They do not enroll or have an option to opt in or out. The SBC is required and if an individual requested to opt-out, you have to allow them to, as per the guidance in Notice all HRAs must provide an opt-out feature. So, while it is unlikely that a retiree would opt-out, the HRA must allow them to. We offer a group medical plan eligible for HSA. We do NOT offer an HRA. We have a couple of active employees who have chosen to enroll in Medicare and therefore not participating in the employer's group medical plan. Can these Medicare covered employees participate in either the Full Flex Plan or Limited Flex Plan? As long as the Health Care FSA does not have an employer contribution of over $500 and the employee is eligible to take the health insurance if they so choose, then they can enroll in either the standard Health Care FSA or the Limited Health Care FSA. If, however, there is a contribution of over $500 that they don t match or exceed with their own election, they would only be able to participate in the Limited Health Care FSA. Can you give an example of when an employee, who elected a medical plan with an HRA, is able to opt out of the HRA? When an employee is enrolling in your medical plan, they can choose to tell the employer that they do not want to get the HRA and the employer has to allow them to "opt out" of the HRA. This could be

3 because they want to make HSA contributions or, if the HRA is a spend down account, they may want to purchase Exchange-based coverage and seek a subsidy but the HRA would preclude them from getting a subsidy because the HRA counts as being enrolled in minimum essential coverage. So you can still have a non-excepted Health FSA if you pay the PCOR fee?? I was told I had to do away with it entirely. Employer was contributing more than $500. There is only one type of non-excepted standard Health Care FSA that is allowable under ACA. That is when all employees who are eligible for the standard Health Care FSA are eligible for the health insurance and the only employees who receive more than $500 of employer contributions are those who are enrolled in your group health plan. Otherwise if individuals who are receiving more than $500 of employer contributions to the Health Care FSA are not enrolled in the health insurance, the Health Care FSA does not meet the annual limit provision nor would it meet the preventative services provision and therefore it would be subjected to the $100/day per employee that has that non-excepted Health Care FSA. If you do have a compliant non-excepted standard Health Care FSA, you would also have to pay PCOR fees, comply with the additional COBRA obligation and also ensure that your waiting period for the Health Care FSA not exceed 90 days from date of hire. Can you comment at all on WHO is eligible to receive benefits under an HSA plan? As I understand it the dependent eligibility for reimbursement is different. You are correct that the definition of whose expenses can be reimbursed tax free from an HSA is different than for a health FSA. That is because the HSA is not considered to be a health plan, it is a savings account, and therefore the child to age 26 rule does not apply. That leaves the account holder, spouse and tax dependents as eligible for reimbursement from the HSA. So dependents must be covered until the end of the year they turn 26 now? Not the end of the month they turn 26? Children can be reimbursed for their medical care expenses tax free to the end of the calendar year they turn age 26. A non-excepted medical plan, individual or group, must cover them to at least the end of the month they turn age 26. So, an employer s health FSA would provide reimbursement to the end of the calendar year. The group medical plan generally to the end of the month they turn age 26 although the plan could extend the coverage to the end of the year. A dental or vision plan is a non-excepted benefit and doesn t have to abide by the age 26 rules and could continue to cover dependent children to the age of 19 or 23, if a full time student.

4 I have a question in regards to the information that was shared that in 2018 there will be a Cadillac Tax on Excess Amounts for Health Plans. It was mentioned that in order to calculate the total cost of health coverage you would add together Employer and Employee Payments for Health Plans + HRA + HSA + Dental and/or Vision Plans. Would it also include payments to supplemental plans such as AFLAC? We have employees who have Cancer, Accident and a few other policies through that source and I m wondering it that would be included? No, the supplemental plans are not considered applicable health benefits under the guidance for the Cadillac tax. In reference to dental or vision plans, the regulation, as written, states that dental or vision plans issued under a separate policy are not included in the calculation of the total cost of health coverage provided. Let s say July , we decide to increase health insurance eligibility from 20 to 30 hours per week. This means we would also need to update our health FSA My Company Plan so our health FSA eligibility increases from 20 to 30 hours per week (effective July meaning we would be midway through our health FSA year). If we had staff working hours per week enroll in health FSA Jan 1, 2015, can they stay on the health FSA plan after the July 1, 2015 hours increase change (so through Dec )? How would we proceed? If you change the eligibility for your group medical plan, the employees that lose eligibility would also have to lose eligibility for the health FSA. You would amend the health FSA eligibility to reflect the change to 30 hours to be effective July 1 if that s when the change to the health plan occurs. The reason is that, under IRS Notice , if an employee is not eligible for the employer s group medical plan and that employee is allowed to participate in a health FSA, the health FSA for that employee becomes a non-excepted health FSA and cannot comply with the preventive care services mandate of the ACA. Therefore, if you allow part time employees to continue in the health FSA after the change in eligibility for the medical plan, you would technically be subject to a penalty of $100 per day for each part time employee enrolled in the non-excepted health FSA. If I understand correctly, an FSA that reimburses dependent care expenses and non-employer sponsored insurance premiums would be excepted FSA plans. Is that correct? First of all, a dependent care FSA is not subject to HIPAA (it s not a health plan) so the whole issue of excepted or non-excepted has no bearing. The ACA does not impact the dependent care FSA at all. The individual premium FSA that reimburses non-employer sponsored insurance premiums cannot reimburse

5 individual medical insurance plans, but can reimburse individual insurance premiums such as vision insurance, dental insurance, disability insurance, etc. You stated: The FSA that reimburses non-employer sponsored insurance premiums cannot reimburse individual medical insurance plans. What provision or rule limits this? It is IRS Notice and Technical Release Under this guidance, an FSA to reimburse premiums (we call such an FSA an Individual Premium Reimbursement Account) is an employer payment plan. An employer payment plan cannot reimburse individual medical insurance premiums for active employees. Is the $ PCOR fee 1 X per enrolled member per plan per year or just 1 X each employee per year? The PCOR fee applies to group medical plans, all HRAs and non-excepted health FSAs. IRS guidance issued prior to the first PCOR fee that was due provides that an HRA or non-excepted health FSA only pays the fee on the employee or participant (e.g., retiree), not on each family member. The fee for affected plans that ended between October 1 and December 31, 2014 is $2.08 per enrolled employee/participant per plan year. For integrated HRAs, the employer pays the PCOR fee and the insurer of the group medical plan pays the PCOR fee. However, if the HRA is integrated with the employer s self-insured medical plan, the employer only pays the fee on the self-insured group medical plan, but pays it for all covered individuals (employees/participants and family members). If an employer offers a health care plan and an employee is eligible, but they choose to enroll only in the FSA, this would be considered non-excepted and subject to PCOR fees? Not necessarily. If all of the funding for the health FSA comes from the employee s pre-tax deductions, or if the employer contributes $500 or less or the employer contributes more than $500 and the employee matches or exceeds the employer s contribution, the health FSA is an excepted benefit and no PCOR fee is due. To be considered non-excepted, the employer would be contributing more than $500 into the participant's Health Care FSAs and the employee does not match or exceed the employer s contribution. However, if the health FSA is a non-excepted benefit, the employee must also be enrolled in the employer s group medical plan, otherwise the employer owes the $100 per day penalty for not complying

6 with the preventive care services mandate. IRS guidance holds that the only non-excepted health FSA must be integrated with the employer s group medical plan (the employee in the non-excepted health FSA is enrolled in the group medical plan) Therefore, the only health FSAs that owe the PCOR fee are integrated non-excepted health FSAs. One caveat a non-excepted limited health FSA can be offered to employees that are not enrolled in the employer s group medical plan and would also owe the PCOR fee. Our health insurance company provides rates based on an individual's age. For the Cadillac Tax to apply, would those individuals who would have monthly premiums that exceed $850/month for individual coverage ($10,200 per year) or $2,291.67/month for family ($27,500 per year) cause the tax to have to be paid or would the monthly single premium average be used? Absent any adjustment allowed in the regulation for a workforce that exceeds the national average for age or risky occupations, the Cadillac Tax is paid on the basis of each individual employee who exceeds the amount, not on an average, for the whole group. And, the total cost of coverage includes the medical plan premiums, health FSA, HRA or HSA contributions, too. Is the Cadillac tax set for these amounts? The regulation refers to the amounts of $10,200 for single coverage and $27,500 for any coverage other than single coverage as the cap on benefits beyond which the tax on excess benefits would apply. Those amounts could be adjusted prior to 2018 or the provision could be repealed. We have a Heath FSA that we offer to part time employees that aren't eligible for our group health care plan. Is this a problem? Are we a non-excepted plan? Yes this is a problem. Since there are employees who are eligible for the standard Health Care FSA and are not eligible for the group health care plan, any part time employee that enrolls in the health FSA has a non-excepted health FSA because your group medical plan is not available to them. Under the regulation, this non-excepted health FSA is not complying with the preventative services mandate and you could be subjected to the $100 per employee per day penalty for each part time employee enrolled in the health FSA.

7 Luckily our one part time person has not elected to participate in the FSA. Should we change our FSA eligibility to match our group health plan eligibility? Yes, the Health Care FSA eligibility should be changed to match the eligibility criteria for your group medical plan or be more restrictive than the medical plan. I have a client who offers an HRA for just prescriptions for certain conditions and non-smoking cessation prescriptions. Is this type of plan subject to PCOR Fee? Yes. The PCOR fee is due for each covered employee per year, not just those employees that are reimbursed for their prescriptions. If an employer's medical plan is qualified as a self-insured plan am I to understand there is no PCOR fee to be paid? The group medical plan always has to pay the PCOR fee whether insured or self-insured and pays the fee on each covered individual, including family members. What was referred to in the webinar is that an employer that self-insures the group medical plan and also provides an integrated HRA for those employees enrolled in the medical plan only pays the PCOR fee for the self-insured medical plan and not for the integrated HRA. Why do you call it a PCOR Fee? Everyone else calls it a PCORI Fee. PCOR stands for Patient-Centered Outcome Research. The fee is intended to fund the Patient-Centered Outcome Research Institute (PCORI). You are correct that the IRS does refer to the fee as the PCORI fee.

8 You stated Cadillac tax includes er and ee chare of premiums (health, dental or vision, health FSA, HRA and HSA. Do that include stand alone dental and vision plans?