by Lexi Garcia | Mar 21, 2023 | Blog
QUESTION: Our company sponsors a high-deductible health plan (HDHP) in conjunction with employee HSAs. Can the medical expenses of our employees’ adult children who otherwise qualify for tax-free coverage under the HDHP be reimbursed tax-free from the employees’ HSAs?
ANSWER: Not necessarily—it depends on whether the adult children qualify as tax dependents under the HSA rules. As group health plans, HDHPs that provide dependent coverage of children must make the coverage available until a child turns age 26. (The age 26 mandate does not generally apply to HSAs because they are not group health plans.) The income exclusion for employer-provided health coverage includes employees’ children who are under age 27 as of the end of the taxable year, regardless of whether those children qualify as tax dependents. But similar provisions do not appear in the HSA tax-free reimbursement rules. Instead, whether an adult child’s medical expenses can be reimbursed tax-free from a parent’s HSA depends on whether the child qualifies as a tax dependent for HSA distribution purposes—i.e., whether the adult child is a qualifying child (for example, due to disability) or a qualifying relative (where the parent provides over one-half of the child’s support). Distributions from a parent’s HSA that reimburse a nondependent adult child’s medical expenses are taxable and may be subject to an additional 20% tax.
Thus, the medical expenses of some adult children who are enrolled as dependents in your company’s HDHP will not qualify for tax-free reimbursement from the employee-parent’s HSA. It is possible, however, that these children may be HSA-eligible themselves. If they cannot be claimed as tax dependents and they meet the other HSA eligibility requirements, they could open HSAs of their own.
Source: Thomson Reuters
by Lexi Garcia | Mar 9, 2023 | Blog
HHS has proposed regulations that would adopt a set of standards for the electronic exchange of clinical and administrative data to support prior authorizations and health care claims adjudication. As background, HIPAA requires that covered entities (and their business associates) comply with rules designed to standardize the format and content of specified electronic transactions. Specifically, the proposed regulations would adopt standards for “health care attachments” transactions that would support both health care claims and prior authorization transactions, along with a standard for electronic signatures. Regulations proposed in September 2005 would have adopted certain standards for health care attachments but were never finalized.
Explaining that the prior regulations were not finalized due to comments about the standards’ “lack of technical maturity and stakeholders’ lack of readiness to implement electronic capture of clinical data,” the preamble to the new proposed regulations notes that despite the subsequent widespread deployment of electronic health records and greater industry experience with the HIPAA standards, transmitting health care attachments is still primarily a manual process. The preamble provides detailed information about the organizations responsible for developing and maintaining the transactions standards and advises that the timing for implementation is right because the industry consensus-based standards are now mature, and covered entities are ready to implement them. The regulations do not propose to adopt attachments standards for all health care transaction business needs. Instead, the approach is for covered entities to gain experience with several standard electronic attachment types so that technical and business issues can be identified to inform potential future rulemaking for other electronic attachments standards.
Source: Thomson Reuters
by Lexi Garcia | Mar 2, 2023 | Blog
HHS’s Center for Medicare & Medicaid Services (CMS) has issued a fact sheet addressing the end of the COVID-19 public health emergency (PHE), which (along with the COVID-19 national emergency) is anticipated to end on May 11, 2023. The fact sheet, which is addressed to individuals, confirms that HHS is expecting the PHE to expire at the end of the day on May 11 and provides information about the implications for coverage under private health insurance, as well as Medicare, Medicaid, and CHIP. Here are highlights relevant to employer-sponsored group health plans:
- COVID-19 Vaccines, Testing, and Treatments. Most plans must continue to cover vaccines furnished by in-network providers without cost sharing but may require individuals receiving vaccines from out-of-network providers to share part of the cost. When the PHE ends, mandatory coverage for OTC and laboratory-based COVID-19 PCR and antigen tests will end. Plans may choose to cover these tests but may require cost sharing, prior authorization, or other forms of medical management. The end of the PHE will not change how COVID-19 treatments are covered; plans that require cost sharing or apply deductibles may continue to do so.
- Access to Telehealth Services. As is currently the case during the PHE, coverage for telehealth and other remote care services may vary from plan to plan after the PHE ends. When covered, plans may impose cost-sharing, prior authorization, or other forms of medical management.
Source: Thomson Reuters
by Lexi Garcia | Feb 28, 2023 | Blog
QUESTION: For 2023, an employee elected $2,400 of health FSA coverage under our calendar-year cafeteria plan, which is funded solely through employee salary reductions and does not provide for carryovers or include a grace period. The employee has already incurred medical expenses equal to this amount in 2023 and wants to be reimbursed for the expenses now, even though she has only made health FSA salary reductions of $400 to date. Do we have to reimburse all of these expenses right away, or can we limit reimbursements to the amount our employee has already contributed and ask her to resubmit the remaining expenses as additional contributions are made?
ANSWER: Your employee must be reimbursed for all of her expenses now, assuming that the expenses are otherwise eligible for reimbursement (e.g., they are for medical care incurred during the current period of coverage, and appropriate substantiation has been provided). That’s because IRS requirements for health FSAs include a “uniform coverage” rule under which the maximum amount of reimbursement must be available at all times during the plan year (or other period of coverage), reduced only for any prior reimbursements for the same period. Reimbursement is deemed “available” under the uniform coverage rule if claims are paid at least monthly, or when an employee’s submitted claims reach a reasonable plan minimum (e.g., $50). Thus, reimbursements cannot be restricted to the amount of the employee’s contributions.
The uniform coverage rule also prohibits accelerating an employee’s salary reductions based on health FSA claims submitted or paid. Note that the uniform coverage rule does not apply to DCAPs, so reimbursements under a DCAP can be limited to the amount that has been contributed, less expenses already reimbursed.
Source: Thomson Reuters
by Lexi Garcia | Feb 23, 2023 | Blog
The IRS has released updated versions of Publications 502 and 503 for the 2022 tax year. Publication 502 describes the medical expenses that are deductible by taxpayers on their 2022 federal income tax returns. Publication 503 explains the requirements that taxpayers must meet to claim the dependent care tax credit (DCTC) for child and dependent care expenses.
The 2022 version of Publication 502 is substantially similar to its 2021 counterpart. Reflecting prior guidance, personal protective equipment (e.g., masks, hand sanitizer, and hand sanitizing wipes) for the primary purpose of preventing the spread of COVID-19 is now included in the list of medical expenses. Clarifications have been added regarding expenses to treat excessive use of alcohol and drugs, and relevant dollar amounts (e.g., the standard mileage rate for use of an automobile to obtain medical care) have been revised to reflect their 2022 inflation-adjusted values. Publication 502 has also been revised to reflect that the health coverage tax credit (HCTC) is not available after 2021. Publication 503 has been revised to note that most of the temporary changes to the DCTC and DCAP rules that were provided as COVID-related relief are no longer available, and to delete references to those changes. It also references prior guidance under which DCAPs could be amended to allow unused amounts from 2021 to carry over to 2022.
Source: Thomson Reuters
