QUESTION: How does the general contribution limit for HSAs work? It is often stated as an annual limit, but isn’t it really monthly? Our company is thinking about changing to HDHP coverage that would allow our employees to make HSA contributions. If we decide to facilitate those HSA contributions or to make employer contributions, would we need to limit the amount of contributions made each month, or only annually?
ANSWER: The general contribution limit for HSAs is an annual limit determined by the number of months of HSA eligibility. The HSA of an individual who is HSA-eligible for the entire year can receive contributions (from any source) up to the full annual limit. If an individual is only HSA-eligible for a portion of the year, the annual limit is prorated based on the number of months of HSA eligibility. A special rule that can change this outcome is noted below.
For example, if Ana, a 40-year-old calendar-year taxpayer, is HSA-eligible for all of 2023 and has self-only HDHP coverage, her HSA can receive contributions of up to the maximum of $3,850 for 2023. (For coverage other than self-only coverage, the maximum for 2023 is $7,750.) If Ana were only HSA-eligible for April through September, however, her annual limit would be 6/12ths of the full annual limit, or $1,925. That $1,925 could be contributed in one month, or in any number of payments made on or after January 1, 2023, and on or before the filing due date (without extensions) for Ana’s 2023 federal tax return. Some or all of the permitted amount could be contributed during a month in which Ana is not HSA-eligible, based on her prior or anticipated months of HSA eligibility. (Of course, contributions could not be made until Ana’s HSA is established, if it wasn’t established by January 1st.) A similar proration rule applies to HSA catch-up contributions, which increase the general contribution limit for HSA-eligible individuals who have attained age 55 by the end of the taxable year. Thus, if Ana were at least age 55 by the end of 2023, and she were HSA-eligible for the entire year, her limit would be increased by $1,000. But if she were HSA-eligible for only 6 months of 2023, her catch-up contribution limit would be only $500.
Employers that facilitate employee contributions or make their own contributions to employees’ HSAs need not limit the amount actually contributed in each month, but they do have to track their employees’ HSA eligibility on a monthly basis so they can determine any prorated limit amount. Employers are only responsible for knowing how their own benefit programs affect HSA eligibility and whether an employee is eligible for catch-up contributions. They need not determine whether employees have disqualifying coverage from other sources or how much has been contributed to employees’ HSAs by other means.
As noted above, special contribution rules can apply when determining a particular employee’s limit. One of these is the “full contribution rule,” which allows calendar-year taxpayers to be treated as HSA-eligible for the entire year if they are HSA-eligible on December 1st, subject to certain conditions that include remaining HSA-eligible for at least a 13-month testing period. There is also a special rule for married individuals if either spouse has family HDHP coverage.
Source: Thomson Reuters
A DOL, HHS, and IRS request for information (RFI) is seeking input about how the preventive health services mandate applies to over-the-counter (OTC) preventive items and services, including the potential benefits and costs of requiring plans and insurers to cover these items at no cost without a provider’s prescription. Agency guidance has previously advised that OTC items and services generally must be covered without cost-sharing only when prescribed by a provider.
The RFI seeks information on current access to and utilization of OTC preventive products, as well as operational challenges for plans, insurers, third-party administrators, and pharmacy benefit managers. For instance, the request asks about operational challenges that may be associated with using telepharmacies and mail orders within and across states or localities. The agencies are also interested in “lessons learned” from providing coverage for OTC COVID-19 diagnostic tests during the COVID-19 public health emergency. The RFI explains that the agencies are particularly focused on OTC preventive care items that can be purchased without a prescription now or in the future, such as contraceptives, tobacco-cessation products, folic acid during pregnancy, and breastfeeding supplies.
Click here for the full request.
Source: Thomson Reuters
The IRS announced 2024 contribution limits for all Flexible Spending Account (FSA) plans. Below is an overview of the limit increases across all the types of FSAs except for Dependent Care FSAs, which remain the same at $5,000 per year.
Health Flexible Spending Account
The Health FSA, which provides employees the ability to set aside money on a pre-tax basis to pay for eligible medical, dental, and vision expenses will have an increase to its contribution maximum from $3,050 to $3,200 for 2024. The new contribution limit will also apply to the Limited Purpose FSA which reimburses eligible dental and vision expenses. Limited Purpose FSA
limits will also increase from $3,050 to $3,200 for 2024.
The FSA Carryover limit provides employers the option to transfer a maximum amount of remaining FSA balances at a plan year’s end to carryover for use during the next plan year. This is available with Healthcare and Limited Purpose FSAs only. The carryover limits for this account will increase from $610 to $640 for 2024.
Commuter Benefits help employees pay for certain parking, mass transit and/or vanpooling expenses with pre-tax dollars. The contribution limits for this account will increase from $300 to $315 for 2024.
The Adoption Assistance FSA helps employees pay eligible adoption expenses such as agency fees and court costs by contributing to the account with pre-tax money from their paycheck. The contribution limits for this account will increase from $15,950 to $16,810 for 2024.
For more information about this major change and how it may impact you, read our latest handout.
QUESTION: We understand that our group health plan can terminate COBRA coverage early if a qualified beneficiary becomes entitled to Medicare after electing COBRA. What does it mean to be “entitled” to Medicare?
ANSWER: When qualified beneficiaries (including covered employees) first become entitled to Medicare after electing COBRA coverage, their COBRA coverage can be terminated early—before the end of the maximum coverage period. For this purpose, the Medicare terms “eligibility” and “entitlement” are not synonymous, and it is important to understand the difference. “Entitlement” means that an individual who is eligible for Medicare has actually enrolled in Medicare and may currently receive benefits. An individual who must take additional steps to enroll in Medicare before receiving benefits is not yet “entitled” to Medicare for purposes of the COBRA rules.
Individuals who become eligible for Medicare Part A (hospital insurance) based on age, disability, or end-stage renal disease (ESRD) must apply to become entitled to Part A coverage in many cases, but entitlement is automatic for individuals who have already applied for and are receiving Social Security or Railroad Retirement Act benefits. Individuals become entitled to Medicare Part B (physicians’ services and other health expenses) either automatically when they become entitled to Part A, or later during specified enrollment periods.
Although group health plans are allowed to terminate a qualified beneficiary’s COBRA coverage early upon Medicare entitlement, it is important to remember that the COBRA rights of other qualified beneficiaries in the family unit who are not entitled to Medicare are not affected. For example, the plan could not terminate the COBRA coverage of the spouse and dependent children of a Medicare-entitled former employee.
Source: Thomson Reuters
QUESTION: Although Medicare entitlement is listed as a COBRA triggering event, our company’s COBRA TPA does not offer COBRA to covered employees when they become entitled to Medicare. Is Medicare entitlement a COBRA qualifying event for active employees who become entitled to Medicare but do not lose coverage under our group health plan?
ANSWER: Medicare entitlement is not a COBRA qualifying event for active employees who become entitled to Medicare but do not lose coverage under a group health plan. If a COBRA triggering event (such as Medicare entitlement) does not cause a loss of plan coverage, there is no qualifying event, and COBRA need not be offered. Medicare entitlement rarely causes a loss of plan coverage for active employees and, therefore, will rarely be a qualifying event. This is because the Medicare Secondary Payer (MSP) rules generally prohibit group health plans from making Medicare entitlement an event that causes a loss of coverage for active employees.
The MSP statute generally prohibits a group health plan from “taking into account” the age-based or disability-based Medicare entitlement of an individual who is covered under the plan by virtue of the individual’s current employment status. In addition, the plan generally must provide a current employee who is age 65 or older with the same benefits, under the same conditions, as those provided to employees who are under age 65. Among the employer or insurer actions that constitute an impermissible “taking into account” are (1) terminating coverage because the individual has become entitled to age-based Medicare; or (2) in the case of a large group health plan, denying or terminating coverage because the individual is entitled to disability-based Medicare without also denying or terminating coverage for similarly situated individuals who are not entitled to disability-based Medicare. (Special rules apply for ESRD-based Medicare.) Consequently, Medicare entitlement will rarely be a COBRA qualifying event because it will rarely cause a loss of plan coverage for active employees.
Be aware, however, that it is permissible under the MSP rules for Medicare entitlement to cause a loss of coverage for covered retired employees. In such a case, Medicare entitlement would constitute a qualifying event for the affected spouse and dependent children (not for the covered retiree), permitting them to elect up to 36 months of COBRA under the plan.
Source: Thomson Reuters
QUESTION: At the beginning of the year, we distributed new SPDs to participants in our company’s ERISA-covered group health plan. We are planning to make some changes to the plan’s terms. When and how do we need to communicate these changes to participants?
ANSWER: ERISA requires that participants be notified of any material modification in a welfare plan’s terms or any change in the information required to be in an SPD. This can be done by providing a summary of material modifications (SMM) describing the change. In addition, under a special rule for group health plans, notice must be provided when there is a material modification in plan terms that affects content required to be included in the summary of benefits and coverage (SBC) and is not reflected in the most recently provided SBC. Here is an overview of the SMM rules:
- What Is a “Material” Change? Except for the definition of a material reduction in group health plan covered services (discussed below), there is no guidance regarding when a modification is material. It appears to be a facts and circumstances determination. We suggest that you err in favor of preparing and distributing SMMs.
- Who Must Receive SMMs? SMMs must be provided to the same individuals who must receive SPDs—generally, participants but not beneficiaries. Note that individuals who do not have the right to automatically receive SPDs or SMMs may have the right to receive a copy upon written request to the plan administrator.
- Deadlines for Providing SMMs. The timing requirements depend on the nature of the change. Any modification that is considered a “material reduction in covered services or benefits provided under a group health plan” must be disclosed no later than 60 days after the date the modification was adopted. (If participants regularly receive SMMs at intervals of not more than 90 days, a plan administrator may wait beyond the 60-day limit to describe the modification in the regularly published form.) Reductions in covered services or benefits include, among other things, the elimination or reduction of benefits payable under the plan, a premium increase, and the imposition of new conditions or requirements. For other changes (i.e., group health plan changes that are not material reductions and changes to plans other than group health plans), the SMM must be provided no later than 210 days after the end of the plan year in which the modification or change was adopted. We suggest a common-sense approach to these deadlines—depending on the type of modification, it may be advisable to provide the SMM before the statutory deadline. This is particularly true if the plan administrator wants the modification to apply on its effective date. Delivery methods must comply with the SPD distribution rules. If the change is included in an SPD that is distributed by the applicable SMM deadline, a separate SMM need not be furnished.
- Style and Content. Like SPDs, SMMs should be written in plain language and must comply with general understandability requirements. The SMM also must work in an understandable way with the SPD it is modifying—for example, by clearly identifying the SPD being modified and the affected SPD provisions. The DOL has provided no prescribed format or model language for SMMs. We suggest including the plan name, the SPD to which the SMM relates, a description of the changes (or the language to be substituted in the SPD) and their effective dates, an explanation that the SMM and SPD must be read together and should be kept together, and whom to contact with questions.
Source: Thomson Reuters