health reimbursement arrangements Archives

IRS Announces Cost-of-Living Adjustments for Health and Welfare Plans

by Jacob Mattinson and Jeffrey Holdvogt | Oct 19, 2022 | Employee Benefits, Fiduciary and Investment Issues, Health and Welfare Plans

On October 18, 2022, the Internal Revenue Service (IRS) announced cost-of-living adjustments to the applicable dollar limits for certain account-based health and welfare plans (see Rev. Proc. 2022-38). The maximum salary reduction limit for a health flexible spending account (Health FSA) increased to $3,050 for 2023 (from $2,850 in 2022), and the Health FSA carryover limit for plans that have adopted that feature increased to $610 for 2023 (from $570 in 2022). In addition to these increases, the monthly limit for contributions to a qualified transportation fringe benefit and qualified parking program increased to $300 for 2023 (from $280 in 2022). The IRS previously announced (see our article here) cost-of-living adjustments to the applicable dollar limits for health savings accounts (HSAs), high-deductible health plans (HDHPs) and excepted benefit health reimbursement arrangements (HRAs) for 2023 for which we also saw substantial increases.

The Social Security Administration also recently announced that the maximum amount of earnings subject to the Social Security tax will increase to $160,200 for 2023 (from $147,000), resulting in a larger chunk of income being subject to the Social Security tax.

The IRS has yet to announce the 2023 cost-of-living adjustments for retirement plans.

These announcements are timely, if not late, given that many employers are already in the middle of open enrollment for 2023. Plan sponsors should act quickly to update payroll and plan administration, along with open enrollment communications, to account for the changes. For further information about applying the new employee benefit plan limits for 2023, contact one of the authors or your regular McDermott lawyer.

A New Day for the HRA

by Jacob Mattinson, Megan Mardy and McDermott Will & Emery | Jul 30, 2019 | Employee Benefits, Health and Welfare Plans

The Departments of Labor, Treasury, and Health and Human Services have released final rules removing the prohibition on pairing HRAs with individual health policies. The final rules also allow certain HRAs and other account-based group health plans to qualify as limited excepted benefits. These rules are generally effective for plan years beginning on or after January 1, 2020.

Access the full article.

Paving the Way for More HRAs

by Jacob Mattinson and Megan Mardy | Nov 1, 2018 | Employee Benefits, Health and Welfare Plans

President Trump signed an executive order last year directing the Secretaries of Labor, Treasury and Health and Human Services to consider proposing regulations to “increase the usability of HRAs.” This month, the collective departments issued proposed regulations containing changes to the prohibition on pairing HRAs with individual health policies, as well as other changes to the current HRA rules.

Proposed effective date January 1, 2020; comments due December 28, 2018.

Access the full article.

Modification of “Use It or Lose It” Rule for Health Flexible Spending Arrangements

by McDermott Will & Emery | Nov 12, 2013 | Health and Welfare Plans

The Internal Revenue Service recently issued new guidance modifying the “use it or lose it” rule applicable to health flexible spending arrangements (FSAs) to allow carryover of certain unused health FSA amounts into the next plan year.

On October 31, 2013, the Internal Revenue Service (IRS) issued Notice 2013-71, which modifies the existing requirement that unused amounts in a health flexible spending arrangement (FSA) at the end of a plan year (or applicable grace period) must be forfeited. This new guidance permits an employer to amend its cafeteria plan, effective as early as the 2013 plan year, to allow up to $500 of unused amounts as of the end of the plan year to be carried forward for use in the following plan year. The tradeoff is that a health FSA cannot have both a grace period and a carryover feature; it is one or the other.

Carryover of Certain Unused Amounts Permitted

The “use it or lose it” rule applicable to health FSAs requires unused amounts remaining in a health FSA at the end of a plan year (or applicable grace period) to be forfeited. The new guidance now permits an employer to amend its plan to allow for up to $500 of unused amounts remaining in a health FSA at the end of a plan year to be carried forward to reimburse eligible expenses incurred in the next following plan year. While the employer can elect to allow less than $500 to be carried over into the next following plan year, the same carryover limit must apply to all plan participants. This $500 permitted carryover feature does not affect the $2,500 annual health FSA limit imposed by the Affordable Care Act. Thus, a participant with $500 remaining unused in his or her health FSA at the end of a plan year may be permitted to carryover the $500 into the next plan year, in addition to a maximum contribution of $2,500, for a potential total of $3,000 available reimbursement that next following plan year.

Under prior IRS guidance, health FSAs are permitted to include a two-month and 15-day grace period after the end of the plan year, during which a health FSA participant can incur eligible expenses and use the amounts contributed for the previous year to pay those expenses. The new guidance specifies that a plan that is amended to provide for the carryover of unused health FSA amounts into the following plan year cannot also have a grace period in place for that following plan year. Thus, an employer amending its plan to allow for carryover of unused health FSA amounts may also need to amend the plan to remove any existing grace period feature.

Deadline for Plan Amendments Allowing Carryover

Under the new guidance, an employer electing to allow for carryover of unused health FSA amounts must amend its plan to permit the carryover. This amendment must be adopted on or before the last day of the plan year from which amounts can be carried [...]

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New Guidance Clarifies Health Reimbursement Arrangements Under ACA

by McDermott Will & Emery | Oct 31, 2013 | Health and Welfare Plans

Recently issued guidance clarifies the application of certain provisions under the Affordable Care Act (ACA) to health reimbursement arrangements, employer payment plans, health flexible spending arrangements and employee assistance programs.

To read the full article, click here.

HHS Releases Guidance Exempting Existing HRAs from Applying for Restricted Annual Limit Waivers

by McDermott Will & Emery | Aug 29, 2011 | Health and Welfare Plans

by Amy M. Gordon and Jamie A. Weyeneth

Under Health Care Reform, for plan years starting on or after September 23, 2010, health plans may impose only "restricted annual limits" on essential health benefits as defined by Health and Human Services (HHS). All annual limits are prohibited for plan years starting on or after January 1, 2014. HHS issued guidance for health plans seeking a waiver of the restricted annual limit for plan years beginning before January 1, 2014. On August 19, 2011, HHS released guidance exempting all health reimbursement arrangements (HRAs) that were in effect on September 23, 2010, from applying for a restricted annual limit waiver. This guidance effectively excuses existing HRAs (including stand-alone HRAs) from complying with the restricted annual limit on essential health benefits for all plan years beginning before January 1, 2014.