The Affordable Care Act (ACA) included rules that impact cafeteria plans. We want to share another reminder about the following elements that should raise significant red flags if they’re a part of your current benefit structure. Be cautious if any these three statements are true of your organization:
1. We (the employer) contribute more than $500 into employee Health FSAs.
2. We offer a Health FSA to people who are not eligible for our Group Health Plan.
3. We reimburse individual health insurance premiums through our Cafeteria Plan or HRA.
If any of these describe your benefits, please contact BPC right away to discuss whether your plan is out of compliance and what corrective actions may be necessary.
The Affordable Care Act requires that group health plans cover preventive services at 100% and that they have no annual or lifetime limits. Instituting a group health plan that fails to comply with these mandates can result in excise tax penalties of up to $100 per day per employee.
Excepted Health FSA: A Health FSA is exempt from the annual limit prohibition, but is subject to the preventive services requirement it unless is a considered an excepted benefit. To be considered an excepted benefit, it must meet two parameters:
1. It must be offered only to employees who are eligible for your group health plan.
2. The maximum payable benefit cannot exceed two times the employee’s salary reduction, or, if greater, the employee’s salary reduction plus $500.
Generally, a Health FSA funded solely by employee contributions will be safe, as long as it is only offered to employees who are eligible for the group health plan. Employer contributions to a Health FSA, provided as a match, or totaling less than $500, will also be safe.
It is also possible to establish a limited-purpose FSA, restricted to dental and vision expenses only, which will be considered an excepted benefit based on the expenses it covers, without regard to the parameters above.
Individual Insurance Premiums: Many employers may wish to offer employees assistance in obtaining individual health insurance coverage, rather than providing a group health plan. Unfortunately, repeated agency guidance has indicated that the IRS and DOL consider employer funding of individual premiums to be a group health plan in its own right. They have also clearly stated their position that such arrangements will generally fail the annual limit prohibition and the preventive services mandate. Their view is that even if the individual policies purchased meet those requirements, the policy reimbursement arrangement will not.
Employers wishing to provide assistance to employees on the purchase of individual premiums should generally just provide basic wage increases, with no requirements for how the funds are used. Allowing any pre-tax payroll deductions to fund individual policies appears to carry significant risks in today’s regulatory landscape.