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Small Business Employee Benefits and HR Blog

HRAs, HSAs and FSAs in 2014 - Changes Under Health Reform (Updated)

The Affordable Care Act (known as ACA, ObamaCare, or health reform) was signed into law in 2010 and impacts many areas of health care and health insurance, including medical reimbursement programs such as HRAs, HSAs, and FSAs.hra_hsa_fsa_health_reform

Last year, we wrote a popular article about how health reform impacts HRA, HSA, and FSA benefit plans (see that article here). Since that article was published, however, there have been additional regulatory changes. Here's an updated review of how HRAs, HSAs, and FSAs are impacted by health reform in 2014 and beyond.

What does HRA, HSA, and FSA stand for?

HRA = Health Reimbursement Arrangement

HSA = Health Savings Account

FSA = Flexible Spending Account

HRA, HSA, FSA - Changes Under Health Reform

Beginning January 1, 2011:

  • Over-the-counter (OTC) medications are no longer eligible for reimbursement from a Flexible Spending Account (FSA), Health Savings Account (HSA), or Health Reimbursement Arrangement (HRA), unless obtained with a prescription (except for insulin).

  • The excise tax for non-qualified HSA withdrawals doubled from 10% to 20%.

Beginning January 1, 2013:

  • Health FSA employee salary reduction contributions limited to $2,500 per plan year, with future increases to allow for inflation.

Beginning January 1, 2014:

  • HRAs: On September 13, 2013, the Department of Labor issued Technical Release 2013-03 which modifies existing annual limit regulations as they pertain to stand-alone health reimbursement arrangements (HRAs) for plan years starting on or after January 1st, 2014. Here's how health reform and the related regulations impact different types of HRAs:

    • Integrated HRAs are generally compliant in 2014

    • Retiree HRAs are generally compliant in 2014

    • Stand-Alone HRAs (with two or more participants starting on or after 1/1/14) are generally not compliant in 2014

    • One-Person Stand-Alone HRAs are generally compliant in 2014

What does this mean for existing stand-alone HRAs? For employers using a stand-alone HRA, or looking to transition to a "pure" defined contribution approach, one solution is to adopt a limited Healthcare Reimbursement Plan (HRP). The HRP is a limited-purpose Section 105 medical reimbursement plan structured to only reimburse:

  1. Health insurance premiums up to a specified monthly healthcare allowance,

  2. Preventive care as required by PHS Act Section 2713 at 100% without cost-sharing.

This structure ensures the HRP complies with health reform (specifically the PHS Act 2711 annual limit requirements and the PHS Act 2713 preventive care requirements as outlined in the Technical Release). Read more: How Healthcare Reimbursement Plans (HRPs) Work With New "Market Reforms".

There are several other health reform regulations that impact health insurance, employers, individuals and HRA/HSA/FSA providers. For a full list of health reform changes this year see Health Care Reform Timeline 2014.

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