by admin | May 29, 2025 | Blog
As healthcare costs continue to rise, many large employers are reevaluating their group health plan offerings. A common cost-saving strategy is to exclude spousal coverage. But does this decision expose employers to penalties under the Affordable Care Act (ACA)? Let’s break down what the 2025 ACA employer shared responsibility rules say about spousal coverage, and how FSAs, HRAs, and HSAs fit into the compliance picture.
ACA Employer Shared Responsibility: The Basics
Under the ACA, Applicable Large Employers (ALEs)—those with 50 or more full-time employees—must offer minimum essential coverage to at least 95% of their full-time employees and their dependents to avoid penalties
- Dependents are defined as biological and adopted children under age 26.
- Spouses are not considered dependents under ACA rules, so employers are not required to offer coverage to spouses to avoid penalties.
Spousal Coverage and ACA Penalties
If an employer excludes spouses from its health plan:
- No penalty applies, even if the spouse obtains subsidized coverage through the Exchange.
- Penalties are only triggered if a full-time employee receives a premium tax credit due to the employer failing to offer affordable, minimum-value coverage.
2025 ACA Penalty Amounts
- 4980H(a) Penalty: $2,900 per full-time employee (minus the first 30), if coverage is not offered to 95% of full-time employees and their dependents.
- 4980H(b) Penalty: $4,350 per full-time employee who receives subsidized Exchange coverage because the offered coverage was unaffordable or did not meet minimum value.
How FSAs, HRAs, and HSAs Impact ACA Compliance
While FSAs (Flexible Spending Accounts), HRAs (Health Reimbursement Arrangements), and HSAs (Health Savings Accounts) are not substitutes for minimum essential coverage, they can play a supporting role in ACA compliance:
1. FSAs (Flexible Spending Accounts)
- FSAs are employee-funded accounts used for out-of-pocket medical expenses.
- They do not count as minimum essential coverage but can help reduce employees’ healthcare costs.
- Employers offering limited-purpose FSAs alongside HDHPs (High Deductible Health Plans) must ensure the HDHP meets ACA affordability and minimum value standards.
2. HRAs (Health Reimbursement Arrangements)
- ICHRA (Individual Coverage HRA) can be used by employers to reimburse employees for individual market premiums.
- If structured properly, an ICHRA can satisfy ACA employer mandate requirements, provided the reimbursement amount is sufficient to make individual coverage affordable.
3. HSAs (Health Savings Accounts)
- HSAs are paired with HDHPs and are employee-owned.
- While HSAs themselves don’t satisfy ACA requirements, the HDHP must meet minimum value and affordability standards.
- Employer contributions to HSAs can help reduce the net cost of coverage, improving affordability calculations.
Excluding spouses from your group health plan does not violate ACA rules and will not result in employer shared responsibility penalties, even if those spouses seek subsidized coverage elsewhere. However, employers must ensure that full-time employees and their dependent children are offered affordable, minimum-value coverage.
FSAs, HRAs, and HSAs can enhance your benefits strategy and support ACA compliance, but they must be used in conjunction with a compliant health plan—not as a replacement.
Source: Thomson Reuters
by admin | Apr 17, 2025 | Blog
HIPAA special enrollment rights allow eligible employees to enroll in health plans outside the regular enrollment period due to specific life events. These rights also impact Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs), and Flexible Spending Accounts (FSAs).
When and Who Receives the Notice?
Notices must be provided to all eligible employees at or before the time they are first offered the opportunity to enroll. This includes employees who:
- Decline coverage due to other health insurance and later lose eligibility.
- Become eligible for state premium assistance under Medicaid or CHIP.
- Acquire a new spouse or dependent by marriage, birth, adoption, or placement for adoption.
What Should the Notice Include?
The notice must describe special midyear enrollment opportunities and inform participants about deadlines for enrollment requests—30 days for most events, 60 days for Medicaid or CHIP-related events.
Distribution Methods
Include the notice with plan enrollment materials and, if conditions are met, distribute it electronically.
Impact on HRAs, HSAs, and FSAs
Special enrollment rights can affect contributions and usage of HRAs, HSAs, and FSAs:
- HRAs: Adjust contributions or usage to align with new coverage.
- HSAs: Review HSA contributions and ensure compliance with IRS rules.
- FSAs: Update FSA elections to reflect changes in coverage or dependent status.
Consequences of Non-Compliance
Failing to provide the notice timely can lead to enrollment issues and potential penalties from the Department of Labor (DOL).
Providing HIPAA special enrollment notices is essential for compliance and helps employees make informed decisions about their health coverage and financial accounts. Understanding the impact on HRAs, HSAs, and FSAs ensures that employees can effectively manage their health-related financial accounts in conjunction with their health plan enrollment.
Source: Thomson Reuters
by Lexi Garcia | Jul 18, 2024 | Blog
In the complex world of healthcare benefits, understanding the requirements for Medicare Part D disclosure notices can be a challenge, especially for start-ups venturing into offering health plans. This article aims to shed light on the requirements for Health Reimbursement Arrangements (HRAs) and Health Flexible Spending Accounts (Health FSAs).
Medicare Part D and Creditable Coverage
Medicare Part D is a federal program that provides prescription drug coverage to individuals who are eligible for Medicare. Plan sponsors that offer prescription drug coverage must disclose to covered Part D-eligible individuals and to the Centers for Medicare & Medicaid Services (CMS) whether their drug coverage is “creditable.” Coverage is considered creditable if its actuarial value equals or exceeds that of defined standard Part D coverage.
HRAs and Medicare Part D Disclosure Notices
The term “group health plan” for disclosure purposes includes “account-based medical plans” such as HRAs. Therefore, sponsors of HRAs that offer prescription drug coverage must provide disclosure notices to Part D-eligible individuals, advising whether the HRA’s prescription drug coverage is creditable. CMS officials have informally stated that a single, combined disclosure notice covering both an HRA and another group health plan offered by the same employer is permitted. Thus, if all of the HRA participants are also participants in your company’s major medical plan, you could avoid separate notices for your HRA entirely.
Health FSAs and Medicare Part D Disclosure Notices
On the other hand, sponsors of health FSAs are not required to provide disclosure notices to Part D-eligible individuals. This is due to a specific exception in CMS guidance, which states that health FSAs are not taken into account when determining whether employer-provided prescription drug coverage is creditable.
Conclusion
Understanding the requirements for Medicare Part D disclosure notices is crucial for companies planning to offer health benefits. While HRAs generally require these notices, health FSAs do not. As always, it’s essential to stay informed and consult with a benefits advisor to ensure compliance with all regulations.
Source: Thomson Reuters
by Lexi Garcia | Jun 27, 2024 | Blog
As a plan sponsor of a self-insured health plan, it’s crucial to maintain accurate records and ensure that all enrolled employees meet the eligibility criteria. However, situations can arise where outdated information leads to ineligible employees being enrolled in the health plan. If you’ve discovered that employees working 25 hours per week have been enrolled based on old handbook information, while your plan documents and Summary Plan Description (SPD) correctly state a 30-hour threshold, swift and strategic action is required.
Immediate Steps for Plan Sponsors
Upon discovering such errors, you must act promptly to minimize complications and potential liabilities. Here are two primary options to consider:
Allow Ineligible Employees to Remain Enrolled:
- Fairness Consideration: Allowing employees to remain in the plan for the rest of the plan year can be seen as fair, especially if they relied on the outdated handbook information. This approach reduces the risk of employees seeking equitable relief due to miscommunication.
- Stop-Loss Insurance Risk: Check with your stop-loss insurer before proceeding. Stop-loss coverage typically adheres to the terms in the plan document, not ancillary documents like handbooks. Without insurer approval, claims from these employees might not be covered under your stop-loss policy.
Remove Ineligible Employees from the Plan:
- Consistency with Plan Terms: Removing these employees aligns with the plan document and SPD, mitigating the risk of significant uncovered claims under your stop-loss policy.
- Prospective Removal: Ensure the removal is prospective, not retroactive, to avoid the impermissible “rescission” of coverage. Retroactive removal could lead to significant legal and ethical issues.
- Equitable Relief Risk: Be aware of the potential for employees to claim equitable relief for lost benefits due to reliance on the outdated handbook.
Ensuring Compliance and Fair Treatment
Consistency is key in handling such situations. Treat all similarly situated employees alike to avoid claims of discrimination under various laws. Disparate treatment can lead to claims of discrimination based on sex, race, age, or health status. Additionally, adhere to the nondiscrimination rules under Code § 105(h) for self-insured health plans.
Discovering ineligible employees enrolled in your health plan requires careful consideration and prompt action. Whether you decide to keep the employees enrolled for the remainder of the plan year or remove them, ensure that your actions are consistent with plan terms and fair to all employees. By addressing the issue swiftly and consulting with your stop-loss insurer, you can mitigate potential risks and maintain the integrity of your health plan.
Source: Thomson Reuters
by Lexi Garcia | Jun 20, 2024 | Blog
When an employee passes away, employers often face challenging questions regarding benefits and compensation. A common question that arises is whether an employer can pay a deceased employee’s unused Health Reimbursement Arrangement (HRA) balance to the surviving spouse. This article delves into the regulations and best practices surrounding HRAs in such scenarios, ensuring compliance and clarity.
HRAs and Their Restrictions
Health Reimbursement Arrangements (HRAs) are designed to reimburse employees for qualifying medical expenses, as outlined in Code § 213(d). Importantly, HRAs are not allowed to disburse cash payments to employees or their beneficiaries at any time, including after the employee’s death. Any attempt to convert HRA balances into cash would disqualify the HRA for all participants, rendering all reimbursed amounts taxable—even those for legitimate medical expenses.
The Concept of Post-Death Spend-Downs
While direct cash payments are prohibited, HRAs can include a provision known as a post-death “spend-down.” This feature allows the remaining HRA balance to be used to cover qualifying medical expenses for the deceased employee’s surviving spouse, tax dependents, and qualifying children. Employers should check their HRA plan documents to see if this feature is included and, if not, consider amending the plan to incorporate it.
Compliance and Nondiscrimination Rules
Amending an HRA plan to include a post-death spend-down feature must comply with several nondiscrimination rules. These rules ensure that benefits are not skewed in favor of highly compensated individuals. Specifically, all benefits provided to highly compensated participants must also be made available to all other participants.
Additionally, IRS Notice 2015-87 casts some uncertainty on whether family members without major medical coverage can utilize a post-death spend-down feature. Until further clarification from the IRS, a cautious approach would be to limit these reimbursements to family members who also have major medical coverage.
Administering Post-Death Spend-Downs
Proper administration of the post-death spend-down feature is crucial. Only qualifying medical expenses for eligible individuals should be reimbursed. Failure to adhere to this can result in all HRA reimbursements becoming taxable, not just those for ineligible expenses. Employers must also remember their obligations under COBRA. If a deceased employee’s death triggers a COBRA qualifying event, then qualified beneficiaries must be given the opportunity to continue their HRA coverage for the duration prescribed by COBRA, regardless of the presence of a post-death spend-down feature.
Conclusion
While it may seem compassionate to pay out a deceased employee’s unused HRA balance to their surviving spouse, doing so would jeopardize the tax-advantaged status of the HRA for all participants. Instead, employers should explore the option of a post-death spend-down feature, ensuring they comply with all relevant nondiscrimination rules and administrative guidelines. By carefully navigating these regulations, employers can support their employees’ families while maintaining the integrity of their HRA plans.
Source: Thomson Reuters
