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IRS Issues Guidance on Effect of ACA on Certain Health Arrangements
(Parker Tax Publishing: October 5, 2013)

IRS provides guidance on the effect of certain provisions of the Affordable Care Act to the following types of arrangements: (1) health reimbursement arrangements (HRAs); (2) certain group health plans; and (3) certain health flexible spending arrangements (health FSAs). Notice 2013-54.

In recently issued Notice 2013-54, the IRS explains how the Affordable Care Act's (ACA) market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs), and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. These market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year, and the market reforms also do not apply to a group health plan in relation to its provision of excepted benefits. Excepted benefits include, among other things, accident-only coverage, disability income, certain limited-scope dental and vision benefits, certain long-term care benefits, and certain health FSAs. Notice 2013-54 also provides guidance on employee assistance programs or EAPs and on Code Sec. 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also called a Marketplace). The notice applies for plan years beginning on and after January 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.

The market reforms specifically addressed in Notice 2013-54 are:

(1) Public Health Service (PHS) Act, Section 2711, which provides that a group health plan (or a health insurance issuer offering group health insurance coverage) may not establish any annual limit on the dollar amount of benefits for any individualthis rule does not prevent a group health plan, or a health insurance issuer offering group health insurance coverage, from placing an annual limit, with respect to any individual, on specific covered benefits that are not essential health benefits to the extent such limits are otherwise permitted under applicable law (the annual dollar limit prohibition); and

(2) PHS Act, Section 2713, which requires non-grandfathered group health plans (or health insurance issuers offering group health insurance plans) to provide certain preventive services without imposing any cost-sharing requirements for these services (the preventive services requirements).

In prior guidance, the IRS provided that an employer-sponsored HRA could not be integrated with individual market coverage, and, therefore, an HRA used to purchase coverage on the individual market will fail to comply with the annual dollar limit prohibition. In Notice 2013-54, the IRS states that no other types of group health plans used to purchase coverage on the individual market be integrated with that individual market coverage for purposes of the annual dollar limit prohibition. For example, a group health plan, such as an employer payment plan, that reimburses employees for an employee's substantiated individual insurance policy premiums must satisfy the market reforms for group health plans. However the employer payment plan will fail to comply with the annual dollar limit prohibition because (1) an employer payment plan is considered to impose an annual limit up to the cost of the individual market coverage purchased through the arrangement, and (2) an employer payment plan cannot be integrated with any individual health insurance policy purchased under the arrangement.

With respect to the question of how the preventive services requirements apply to an HRA that is integrated with a group health plan, Notice 2013-54 provides that, similar to the analysis of the annual dollar limit prohibition, an HRA that is integrated with a group health plan will comply with the preventive services requirements if the group health plan with which the HRA is integrated complies with the preventive services requirements. Notice 2013-54 also provides that a group health plan, including an HRA, used to purchase coverage on the individual market may not be integrated with that individual market coverage for purposes of the preventive services requirements.

Notice 2013-54 also provides that an HRA will be integrated with a group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements if it meets the requirements under either of the integration methods described in the notice. Pursuant to Notice 2013-54, under both methods, integration does not require that the HRA and the coverage with which it is integrated share the same plan sponsor, the same plan document or governing instruments, or file a single Form 5500, if applicable.

The notice also explains the criteria that must be met for an HRA to be considered integrated with another group health plan for purposes of the annual dollar limit prohibition and the preventive services requirements.

For a discussion of HRAs and flexible spending arrangements, see Parker Tax ¶120,125 and ¶122,555.

Parker Tax Publishing Staff Writers

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