Impact on FSAs, HSAs, and HRAs
Changes in Young Adult Coverage, OTC Drug Reimbursement, HSA Penalties, and Medical FSA Contributions
Some of the provisions included in the health care reform signed into law in March 2010 may have a substantial impact on how your employees use their flexible spending accounts (FSAs) and health savings accounts (HSAs). If your business offers an FSA, health reimbursement account (HRA), or an HSA, your employees will be affected.
Effective Immediately
Change in Coverage Guidelines for Young Adults Affects FSAs.
In addition to the rules that require employers to continue health insurance coverage for adult dependents, participants can also submit FSA claims for expenses incurred by their adult dependents who will not reach age 27 by the end of the calendar year. Additionally, eligible expenses for these dependents incurred on or after March 30, 2010 are eligible for reimbursement.
Note: This guidance only applies to individuals who have not reached age 27 at any time during the calendar year, regardless of tax dependent status.
Effective January 1, 2011
FSAs, HSAs, and HRAs: No reimbursements for over-the-counter drugs without a prescription.
Over-the-counter medicines or drugs (other than insulin) are no longer eligible for reimbursement under a health reimbursement arrangement or medical flexible spending account unless prescribed by a medical practitioner.
Increased Penalties on Certain Health Savings Accounts.
The new law increases the penalty for distributions from an HSA that are used for purposes other than to pay "qualified medical expenses" from the existing 10 percent to 20 percent. This change is effective for distributions made after December 31, 2010.
Effective 2013 and Beyond
Maximum Contribution Limit on Health Flexible Spending Accounts.
Beginning January 1, 2013, medical FSA contributions will be limited to the lesser of a $2500 cap for a taxable year or the company maximum. This maximum will be adjusted annually for inflation beginning in 2014.
Informing Your Employees
If your FSA plan is administered through Paychex, we will notify your participating employees of this important change well before the effective date.
Penalties Doubled!
Penalties for using HSA distributions other than to pay for qualified medical expenses will increase from 10 percent to 20 percent on January 1, 2011.
Paychex Insurance Agency Can Help
Paychex Insurance Agency is a full-service organization ready to provide and guidance about dependent coverage and other provisions of health care reform.
An essential partner to over 550,000 businesses nationwide, Paychex closely monitors legislation that affects our clients. With access to legislative and regulatory specialists in Washington, D.C., and utilizing expert, in-house sources of legal and compliance guidance, Paychex Insurance Agency will continue to provide the latest information on health care reform.
Paychex Insurance Agency is ready with the coverage you need, when you need it. To speak with a licensed insurance representative about the right plans for your business, your employees, and yourself, call 877-393-8868 or have an agent call you.
The Department of Health and Human Services and the Internal Revenue Service (IRS) continue to provide specifics and guidance on the Health Care Reform Act. Paychex will monitor these regulatory developments and provide updates as appropriate.
The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant. It is provided for informational purposes only. If you require legal or accounting advice, or need other professional assistance, you should always consult your licensed attorney, accountant, or other federally licensed tax professional to discuss your particular facts, circumstances, and business needs.
Insurance available through Paychex Insurance Agency, Inc. (formerly Paychex Agency, Inc.), 150 Sawgrass Drive, Rochester, NY 14620. CA License #0C28207.
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