H&W: Legal Status of Certain Account-Based Funding Arrangements Under the Affordable Care Act

Recent guidance from the Department of Treasury, Labor and Health and Human Services has clarified the legal status of certain account-based funding arrangements under the Affordable Care Act (ACA).

In particular, the Departments have stated the following commonly used plan designs will not comply with the ACA.

1. HRAs that are NOT integrated with other employer-sponsored coverage that complies with the ACA¹. HRAs are not considered integrated if any of the following applies:

• HRA coverage is available to an employee who is not also covered under an ACA-compliant plan.
• The HRA can be used to purchase coverage on the individual market.
• The HRA fails to conform to one of two possible integration methods:
  • Minimum Value Not Required
  • Minimum Value Required
• The group health plan with which the HRA is integrated does not cover a category of essential health benefits and the HRA is available to cover that category of essential health benefits and limits the coverage to the HRA’s maximum benefit.

Transition relief is available for certain HRAs with unused amounts credited before January 1, 2014.

2. Cafeteria plans that pay or reimburse employees for coverage purchased on the individual market (other than through a SHOP.)

3. Health FSAs that are NOT excepted benefits.  A Health FSA IS an excepted benefit if:

• It is offered through a section 125 cafeteria plan;
• The employer also makes available group health plan coverage that is not limited to excepted benefits; and
• The health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

4. Pre-tax employer payment plans (other than cafeteria plans) that pay or reimburse employees for premiums for non-employer sponsored coverage. This does not include programs pursuant to which employees are taxed on employer payments or reimbursements.

Footnote

¹ These concerns do not apply to stand-alone retiree-only HRAs; however, retirees covered under such an arrangement would be deemed to have minimum essential coverage and would be ineligible for a premium tax credit.