Many medical expense flexible spending account arrangements (medical FSAs) and health reimbursement arrangements (HRAs) will need to be amended before 2014 to avoid violating the Affordable Care Act (ACA). These limitations are contained in IRS Notice 2013-54. These limitations are in addition to the requirements that these plans be adopted pursuant to written plan documents describing their terms and specific requirements of Code Sections 105, 106, 125 and others.
Health Reimbursement Arrangements (HRA)
Health Reimbursement Arrangements
HRA is an church-provided allowance permitting reimbursement of employee medical expenses that are not otherwise covered by another plan. A common form occurs when an church adopts a high-deductible health insurance plan and then agrees to reimburse some or all of the deductible. This reimbursement arrangement is an HRA. Other HRAs allow for reimbursement apart from health insurance deductible amounts and permit the allowance to be applied to pay expenses beyond those covered by the health insurance plan, such as dental and vision expenses.
Beginning in 2014, stand-alone FSA plans are still available for one church employee. For two of more employees, a FSA may continue or be adopted in 2014 only if it is “integrated” with other group health plan coverage. To avoid violation, the HRA must be “integrated” with another health care plan by meeting the following:
- the church must offer other group health plan coverage beyond excepted benefits and an employee may participate in the HRA only if also enrolled in the group health plan.
- at least annually, the HRA must permit employees to opt-out of future reimbursement from the HRA.
- at termination of employment, the accumulated HRA credits must be forfeited or the employee must be permitted to opt out of future reimbursement.
Health Flexible Spending Arrangements (FSA)
Health flexible spending accounts (FSAs) are tax-advantaged accounts that reimburse employees for certain medical expenses, up to the amount contributed for the plan year. Health FSAs are commonly offered through a cafeteria plan to allow employees to make pre-tax salary reduction contributions to their FSAs.
In addition, the IRS has relaxed the health FSA “use-or-lose” rule. Under the relaxed rule, the church will be able to allow participants to carry over up to $500 in unused funds into the next year. However, the relaxed “use-or-lose” rule only applies if a plan does not also incorporate an extended deadline, or grace period, after the end of the plan year to use health FSA funds. The new carryover provision is available beginning with the 2013 plan year.
Beginning in 2014, stand-alone FSA plans are still available for one church employee. For two of more employees, a FSA may continue or be adopted in 2014 only if it is “integrated” with other group health plan coverage. To avoid violation, the HRA must be “integrated” with another health care plan by meeting the following:
Section 125 Premium Only Plan
Section 125 Premium Only Plan, or a POP Plan, is an essential part of any church group health insurance and ancillary benefit program. Section 125 is the part of the IRS Code that allows employees to purchase health insurance and other ancillary benefits tax free. A Section 125 Plan legally allows your employees to pay their portion of medical insurance premium and other ancillary benefits premiums using pretax or tax-free dollars.
