Notice 2011-1: Delayed Nondiscrimination Rules
Under the Patient Protection and Affordable Care Act (the "Affordable Care Act"), certain nondiscrimination rules were scheduled to apply to insured medical plans that are not "grandfathered" effective for plan years beginning on or after September 23, 2010 (i.e. January 1, 2011 for calendar year plans). Currently, similar rules apply only to self-insured plans.
For background on the nondiscrimination rules and grandfathered health plan regulations, click the links below:
In deferring the effective date of these new rules, the federal government has recognized that regulatory guidance is essential to their operation and that employers will need time to implement any changes required by the as of yet unissued regulations. As such, compliance with these new rules is not required until after the regulations or other administrative guidance has been issued. Significantly, the requirement to pay excise taxes for noncompliance is also deferred.
Considering that the federal government has also requested additional public comments regarding the application of the nondiscrimination rules to insured medical plans, we anticipate that the rules should not apply earlier than plan years beginning in 2012, and may in fact be deferred until a later date.
Consequently, employers have some breathing room to consider the redesign of insured, non-grandfathered plans.
Notice 2011-5: Debit Cards Permitted
Additionally, effective January 1, 2011, the Affordable Care Act provides that OTC drugs can no longer be reimbursed through a health FSA or HRA, unless prescribed. In previously issued guidance, the Internal Revenue Service substantially limited the use of debit cards for such purchases, effective January 15, 2011.
For details regarding this limitation, click the link below:
In a change from this previous guidance, Notice 2011-5 permits health FSA and HRA debit cards to continue to be used to purchase prescribed OTC medicines at drug stores and pharmacies as well as from mail-order and web-based vendors, provided that certain requirements are met.
Specifically, these requirements are:
- Before the purchase, the prescription for the OTC medicine or drug must be presented (in any format) to the pharmacist and the medicine or drug must be dispensed by the pharmacist in accordance with applicable law and regulations. In addition, an Rx number must be assigned to the prescription.
- The pharmacy or other vendor must retain a record of the Rx number, the name of the purchaser (or the name of the person for whom the prescription applies), and the date and the amount of the purchase in a manner that meets IRS requirements.
- The records described above must be available to the employer or its agent upon request.
- The debit card system will not accept a charge for an OTC medicine or drug unless an Rx number has been assigned.
- The additional rules for the use of health FSA or HRA debit cards set forth in existing Treasury regulations and other guidance are followed.
Please feel free to contact Liza Hecht (lhecht@nfclegal.com), Christine Gottesman (cgottesman@nfclegal.com) or the Nukk-Freeman & Cerra attorney with whom you work to discuss these important changes, or if you have any questions regarding the Affordable Care Act.
Any tax advice included in this written or electronic communication was not intended or written to be used, and it cannot be used by the taxpayer, for the purpose of avoiding any penalties that may be imposed on the taxpayer by any governmental taxing authority or agency.
