Effective September 23, 2010, the
health reform bill prohibits group health insurance plans from imposing
lifetime limits on
essential health benefits. However, plans may impose certain
annual limits on essential health benefits until January 1st, 2014. This new requirement applies to plans with effective dates of coverage on September 23, 2010 or later.
The annual limits restrictions phase in over the next few years as follows:
- Phase 1 (September 23, 2010 through September 22, 2011) - $750,000 maximum per participant
- Phase 2 (September 23, 2011 through September 22, 2012) - $1,000,000 maximum per participant
- Phase 3 (September 23, 2012 through December 31, 2013) - $2,000,000 maximum per participant
- Phase 4 (January 1st, 2014 Year 5 and beyond) - no annual limit allowed
Health Reimbursement Arrangements (HRAs)
Flexible Spending Accounts (FSAs)
Health Savings Accounts (HSAs)
Effective January 1, 2013, a maximum election limit will be placed on the amount an employee can contribute to a health
Flexible Spending Account (FSA).
The maximum election limit will be $2,500 per participant. It is important to note that this limit only applies to pre-tax contribution by an single employee (i.e. A husband and wife may each elect $2,500 if they participate in separate FSA plans). Similarly, an employers may make contributions to an FSA above and beyond the $2,500 limit.
Beginning in 2014, the maximum election limit will be indexed to the CPI.
On April 27, the IRS issued
Notice 2010-38 which expands the health care tax exclusion for adults below the age of 27 as of the end of the taxable year.
Effective March 30, 2010 employees who have children who will not have reached age 27 by the end of the year are eligible for the new tax benefit. For this purpose, a child includes a son, daughter, stepchild, adopted child or eligible foster child. This new age 27 standard replaces the lower age limits that applied under prior tax law. It also replaces the requirement that a child generally qualify as a dependent for tax purposes. The definition of "Child" includes children of employee/spouse, step children, adopted children and foster children. There is no requirement that the child be a "dependent" for tax purposes.
Section 125 Cafeteria Plans
The notice clarifies that employers with
Section 125 plans may allow employees to make pre-tax contributions to provide coverage for children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals (plans have until the end of 2010 to amend their cafeteria plan language).
Health Reimbursement Arrangements (HRAs) The notice clarifies that expenses incurred by a child under age 27 may be reimbursed from a
Health Reimbursement Arrangement (HRA).
Health Savings Accounts (HSAs)
The notice does not reference
Health Savings Accounts (HSAs). Because the
health reform bill did not amend the section of the code that governs HSAs, it appears that expenses incurred for an adult child who does not qualify as a tax dependent cannot be reimbursed from an HSA.
Special ordering rules (i.e. "coordination rules") can be implemented to determine whether the HRA or FSA should be used first.
Unless otherwise specified in the plan documents, the HRA must be used first.
