I thought it was an excellent post, Ric. Very clear and concise. I read and re-read 2013-54 10 times and still had questions, but you answered them. Thanks for sharing and letting us use your post.
Please Read. Action Required. Steps Provided.
By Ric Joyner, CEBS, GBA, RPA, CFCI
On September 13, 2013 the IRS changed the rules with Notice 2013-54 for Premium Reimbursement Arrangements (PRAs), Health Flexible Spending Accounts (FSAs), and Health Reimbursement Arrangements (HRAs). The IRS in verbal comments, to clarify their position, stated they are stopping the pre-tax (tax-free) purchase of individual health policies by an employee, and employers without group health insurance or self-funded group health plans can essentially no longer have a Health Flexible Spending Account (Health FSA) or Health Reimbursement Arrangement (HRA).
Because of these new changes our goal is to create an easy to read guide for your review.
PREMIUM REIMBURSEMENT ACCOUNT (PRA)
Definition: This is an account that allows employees to pay, on a tax-free basis, individual health insurance premiums.
Tax-free dollars are to be discontinued for the PRA starting with your plan year beginning on or after January 1, 2014. However, many employers are continuing the PRA even though dollars are no longer tax-free. Here are some reasons for keeping the PRA with after-tax dollars:
- The PRA is a valued benefit employees appreciate. Employers and employees can continue to credit the PRA with after-tax dollars, which assists employees with the purchase of their coverage.
- By continuing the deduction under the PRA, the participants will not have to worry about their insurance premiums being paid timely.
Action item: When your plan renews is when the after-tax PRA requirement takes effect.
Action item: Have payroll continue the deductions for the PRA but on an after-tax basis. This requires notifying your payroll software or provider.
Note: Employers need to be cautious by avoiding having this arrangement treated as an employer health plan. The voluntary plans safe harbor is available where (1) the program is voluntary (2) there are no employer contributions (3) the employer’s involvement is limited to forwarding the premiums and (4) the employer receives no compensation.
eflex after tax PRA meets these criteria.
HEALTH FLEXIBLE SPENDING ACCOUNT (Health FSA)
Definition: This is an account or FSA that allows employees to pay, on a tax-free basis, their medical expenses from salary reduction contributions of up to $2,500 per year.
If your firm is not carrying a group health policy or sponsoring a self-funded group health plan, employees can no longer make pre-tax (tax-free) salary reductions for eligible 213(d) medical expenses through the Health FSA without running afoul of the ACA’s “insurance market reform” rules.
- For further information regarding the a Health FSA that is excepted or non-excepted see http://benefitblog.com
HEALTH REIMBURSEMENT ARRANGEMENT (HRA)
Definition: A health reimbursement arrangement is an account the EMPLOYER funds for medical expenses similar to the Health FSA, or for specific benefits that the health plan doesn’t cover. HRA reimbursements can also include premiums or contributions for health coverage. The HRA operates similarly to the PRA and is frequently used to provide retiree only benefits.
- Do you offer a stand-alone Health Reimbursement Arrangement to active employees? ACA insurance market reform rules, as interpreted by the IRS and DOL, indicate that an employer with a free-standing HRA designed to reimburse medical expenses incurred by employees (operating “like” a Health FSA) can no longer be offered after your current plan year ends.
- In addition, those HRAs that offer employer money to pay for individual health insurance (as distinguished from employer “group” coverage) are no longer allowed.
- HRAs are that are tied to or “integrated” with the group health plan are ALLOWED.
- Retiree only HRAs are allowed.
Excepted and non-excepted HRAs are discussed further at http://benefitblog.com/.
SUMMARY ACTION ITEMS
Step 1: Are you offering a PRA? If so, when your plan year renews, inform employees that their election for paid at home premiums is now taxed.
Step 2: Have payroll continue the deductions for the PRA but on an after-tax basis. This requires notifying your payroll software or provider.
Step 3: Are you offering a free standing HRA that is not working with your group health plan? If yes, then this benefit will cease when your plan year renews. Please inform your employees. If you need language from eflex for a news blast, please let us know.
Step 4: For the Health FSA, are you offering a group health plan for your employees? If no, then the current regulations say that the health FSA is not a HIPAA “excepted benefit,” which means that employers cannot offer the Health FSA to employees without running afoul of the ACA’s insurance market reform rules.
Please contact us for questions if you are in doubt about which type of plan you carry with eflex.
We are planning a compliance seminar to explain this in more detail so please watch www.benefitblog.com for those details and emails.
Credit given for review and editing to Jamie Johnson; eflexgroup, Todd Martin; Todd Martin Law