Changes in store for health reimbursement arrangements come 2014
Business professionals and working Americans are gearing up for the changes that will occur once most of the provisions of the Patient Protection and Affordable Care Act are fully implemented on Jan. 1, 2014. To help ease the transition, the U.S. Departments of Health and Human Services, Treasury and Labor have been releasing informal guidance to assist individuals in the process.
On Jan. 24, the agencies issued their eleventh series of FAQs. This edition specifically addressed important questions that both businesses and employees may have about what will happen with health-reimbursement arrangements (HRAs) once 2013 comes to an end.
Lessening the burden of healthcare costs
HRAs were created by the U.S. Internal Revenue Service in 2002 to provide pre-tax dollars to employees to help pay for their healthcare, and they have become quite common over the past 10 years. They are often combined with a high-deductible health plan (HDHP), but can also be stand alone. Similar to flexible spending accounts (FSAs), HRAs are held by the employer and allow consumers to use a certain amount of funds from their employer to pay for out-of-pocket medical expenses.
One advantage that HRAs have over FSAs is that any funds that remain in the accounts at the end of the plan year can be carried over.
Healthcare reform and HRAs
Section 2711 of the Public Health Service (PHS) Act, which was added by the ACA, prohibits annual dollar limits on health plan coverage. This poses a challenge for HRAs since they are, by definition, limited in how much funds are available. The agencies’ guidance specifies that when an HRA is integrated with a traditional group health plan that complies with the regulations, the HRA would not violate section 2711 and would be allowed to have an annual limit. HRAs are considered integrated when they are only available to employees covered by the group health plan and not provided on a stand-alone basis. This allowance only extends to HRAs integrated with group coverage, not HRAs that may be combined with individual market coverage.
The future of consumer-directed healthcare
Although there will be some exceptions as to how HRAs are to be used, the good news is that HRAs and other types of savings accounts will most likely continue to thrive once the ACA is fully implemented. HRAs, HSAs and FSAs can all be paired with HDHPs to offer Americans a way to not only stay on top of their medical expenses, but also become more informed about their health and how the U.S. healthcare system works. Increasingly more employers are recognizing the benefits of these types of plans, also known as consumer-directed healthcare plans (CDHPs), and offering them to their workers. In addition, individuals will be able to look at the benefits of CDHPs in the statewide health insurance exchanges starting Jan. 1, 2014.
*Note: Content provided is not intended as legal or tax advice.