Notice 2013-54 defines an excepted Health FSA.
… a health FSA may be considered to provide only excepted benefits if other group health plan coverage not limited to excepted benefits is made available for the year to employees by the employer, but only if the arrangement is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).
Let’s practically apply this.
Application 1: Our attorney, Todd Martin confirms that an employer is required now to carry a group health insurance policy for employees in order to offer a Health FSA. If an employer decides to drop group coverage for any reason, the Health Flexible Spending (FSA) will then be cancelled.
Application 2: Assume that a group health plan is in place at the employer. The employer can contribute to the Heath FSA. The employer contribution amount cannot exceed two times what the employee contributes. For example, if the employee contributes $2,500.00 per year the employer could contribute up to another $5,000.00 thus giving the employee $5,000.00 to spend. (The regulation states that the “maximum benefit payable cannot exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction).”
Application 3: Consider the above scenario, but the employee is not participating in the Health FSA. The employer can offer up to $500.00 into the Health FSA for the employee to spend. This was undefined prior to the notice.
HRA: Can an employer offer to pay for individual health insurance through an HRA?
Notice 2013-54 page 6 III. Guidance states:
1. Application of the Market Reform Provisions to HRAs and Certain other
Employer Healthcare Arrangements
The HRA FAQs provide that an employer-sponsored HRA cannot be integrated with individual market coverage, and, therefore, an HRA used to purchase
coverage on the individual market will fail to comply with the annual dollar limit prohibition. May other types of group health plans used to purchase coverage on the
individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition?
No. A group health plan, including an HRA, used to purchase coverage on the individual market is not integrated with that individual market coverage for purposes
of the annual dollar limit prohibition.