Health Reform Prohibits Most Reimbursement Plans

The many small businesses that had for decades relied on freestanding health reimbursement arrangements (HRAs) or employer payment plans (EPPs) under Rev. Rul. 61-146 to provide health care benefits for employees may no longer do so in most cases because of the provisions of the Patient Protection and Affordable Care Act (PPACA), PL. 111-148. Notice 2015-17 provided additional time this year for companies to retool HRAs. However, the notice's relief for EPPs expired on June 30, except for S corporation 2% shareholder-employees, for whom it continues through 2015, with further guidance expected this year. The market reform provisions prohibited annual limits on the dollar value of health benefits under group health plans. Therefore, employer group plans that provide an annual maximum amount of payment or reimbursement generally fail that provision. However, PPACA allows such plans to be integrated with an employer-sponsored health plan that does comply with the market reform provisions. The market reform provisions also generally require group health plans to provide certain preventive services without any cost-sharing requirements. The provisions do not apply to accident-only coverage, limited-scope dental and vision benefits, and other benefits provided in a group health plan. [ILLUSTRATION OMITTED] In Notice 2013-54, issued in September 2013, the IRS clarified that all pretax EPPs are considered to be group health plans subject to the PPACA market reforms. A wide range of tax-advantaged arrangements to pay premiums are now categorized as EPPs. All HRAs or plans for the direct payment of health insurance that were previously allowed under Rev. Rul. 61-146, Sec. 105, Sec. 106, and Sec. 125 are affected. Such reimbursement arrangements cannot be integrated with individual policies to meet market reform requirements and therefore may be subject to a $100-per-day excise tax per employee (with very limited exceptions) under Sec. 4980D. WHAT'S WRONG WITH A CAFETERIA PLAN? Cafeteria plans allow employees to pay, on a pretax basis, for individual health insurance premiums not otherwise paid for by their employer. The IRS treats these salary reduction contributions as employer contributions excluded from income under Sec. 106. Thus, because the employee contributions are treated as employer contributions, the cafeteria plan is considered a group health plan subject to the market reform provisions, and, as such, the plan must provide preventive services without cost sharing in all instances. Presumably, under Notice 2013-54, a cafeteria plan would fail this preventive services requirement. WHAT HEALTH REIMBURSEMENT PLANS ARE ACCEPTABLE? * Health flexible savings accounts (FSAs) offered as part of a cafeteria plan. A health FSA is an excepted benefit only if the employer offers to employees other group health plan coverage not limited to excepted benefits for the year 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 arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant's salary reduction election). Thus, the employer contributions to the health FSA must be under $500 or not more than a 100% match of employee contributions. * HRAs integrated with a group health plan that complies with the annual-dollar-limit prohibition and the preventive services requirements. By the new definition, individual health policies will cause any reimbursement or pretax plan to fail the new requirement. HOW IS AN HRA INTEGRATED WITH A COMPLIANT GROUP HEALTH PLAN? Under Notice 2013-54, an HRA will be integrated with a group health plan for purposes of the annual-dollar-limit prohibition and the preventive services requirements if it meets the requirements of one of two integration methods. …