Folks, this is just maddening. I am still getting calls from brokers who are being inundated with information that tells them they can pre-tax insurance through an HRA or an FSA (PRA) individual premium reimbursement purchased in an exchange.
The reason for the prohibition is that it actually makes sense. Why because the people going to the exchange may get a government subsidy to buy the insurance! Why would the government give a tax break again while giving people money to purchase the insurance? So of course the government would stop the pre-taxing while on the one hand giving them the money to purchase it! But we still have people who push this program. Simply, here is my advice. Don’t do it. Outside of an exchange…no problem.
Here is why: Section 125f was amended to preclude any pre-tax deduction for individual insurance that is purchased through an exchange for section 125. So a section 125 pre-tax program is not available for an individual that purchases insurance through an exchange except for SHOPs. This includes PRAs which is a separate FSA just for premiums paid by the family or individual at home.
HRA: The DOL issued guidance last January to indicate they were going to prohibit the use of HRAs as premium only plans (individual insurance in an HRA). But the DOL has yet to issue guidance. Why? The “thought” among those in DC that are connected to the DOL is that several key people left recently, the employer mandate was pushed back and the DOL is extremely busy. With the moving targets of changes to dates of implementation, and the other reasons mentioned, the DOL may be waiting until next year. BUT they are intending to issue guidance to prohibit.
Normally, I am middle of the road and can take these turn of events as a permission of sorts to go ahead with individual insurance in HRAs. In this case, I don’t think it is wise and many attorneys feel the same way. In fact, we are advised from Counsel to get a hold harmless from the employer and broker indicating that we don’t approve of this type of plan. The other reason I am not middle of the road on this is the verbal comments by DOL and IRS that indicate they know the “theories” or excuses some firms are putting out to indeed continue this practice and their comments were not supportive. Thus, we can conclude this is not a good idea to put your clients at risk and it is a risk. If you decide to go ahead with the practice, and I advise against it require that the service provider you offer will take the liability for the program, and if they aren’t willing to do so, perhaps you should pass or at the very least ask the employer for a hold harmless.
Since our mission at eflex is to tell you the entire story in a 360 format the decision ends up being yours. But evaluate the risk and benefits for your clients before going forward. There are many other options available to you in designing benefits.
Where we see most sales of these plans is in the individual, micro (under 15) and small group markets. The tendency too is for the broker to have the mindset of dropping the group coverage and selling individual coverage. They use an old cafeteria plan tool called defined contribution to determine a funding number.
Opposite of this are the brokers who work in larger small group, mid-size, large and or jumbo groups. Defined contribution is used as a tool to control future costs and promote consumerism versus dropping group coverage. This is where we live.
We also believe in not putting our brokers at risk and not offer products that could put them or their clients in harm’s way. Hence, the reason we are backing off and taking a more conservative approach.