Impact of the ACA on HRAs and Cafeteria Plans in 2014
Health Reimbursement Arrangements (HRAs) are, in general, considered group health plans as defined in the Affordable Care Act (ACA) and are subject to coverage mandates on such plans. The Internal Revenue Service (IRS) and Department of Labor (DOL) recently issued guidance that addresses the application of two particular ACA mandates to HRAs and health flexible spending accounts (FSAs). Both the IRS and DOL concluded that an HRA that is subject to the annual limit prohibition and preventive care requirement will not be able to comply with these mandates. Accordingly, an HRA either needs to be designed to be exempt from the ACA mandates or must be amended to not allow current funding, but allow prior funding to be used for appropriate expenses.
Although an HRA cannot comply with the annual limit prohibition and the preventive care requirement, it might be possible to design an alternative, such as a Section 105 medical expense reimbursement plan. Such a plan would likely need to do two things: cover all preventive care without cost sharing and without any annual limits; and impose no annual limits on any other "essential health benefits" covered under the plan.
The recent guidance addressed the impact of the ACA on health FSAs offered through a Section 125 cafeteria plan. As with HRAs, health FSAs are, in general, considered group health plans for purposes of the ACA, particularly the preventive care requirement. The IRS and DOL concluded that a health FSA that is subject to the preventive care mandate will not be able to comply with it. Accordingly, a health FSA either needs to be designed to be exempt from the ACA mandates or must be terminated.
The ACA requirements described above are generally effective the first day of the plan year beginning on or after January 1, 2014.
For more details on exempt HRAs and FSAs, as well as freezing an HRA, HRAs and individual medical insurance polices, and other types of individual policy arrangements, click here to read our full article.