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F. Contributing to Reimbursement Accounts

Health Care Security Ordinance FAQs
Administrative Code Chapter 14

A. HCSO Overview
B. Covered Employers
C. Covered Employees
D. Calculating Required Health Care Expenditures
E. Making Required Health Care Expenditures
F. Contributing to Reimbursement Accounts
G. Contributing to the City Option
H. Employer Notice-Posting Requirement

I. Employer Recordkeeping Requirements
J. Employer Reporting Requirements
K. Health Surcharges
L. Retaliation Prohibited
M. Filing a Complaint
N. Penalties
O. HCSO and the Affordable Care Act

 

 

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts that take effect in 2014. The Affordable Care Act may impact the permissibility of such programs under federal law. Consult these federal resources and proper counsel when deciding whether such contributions comply with the ACA.

For more information, please review the FAQs on the HCSO and the Affordable Care Act.

November 5, 2013

 

    1. Q. What is a reimbursement account? 
    2. Q: When does a contribution to a reimbursement account constitute a qualifying health care expenditure?
    3. Q: Do the rules regarding reimbursement programs impact contributions to the City Option? 
    4. Q: Can an employer contribute to a Flexible Spending Arrangement to satisfy the requirements of the HCSO? 
    5. Q: What does it mean for a contribution to be “reasonably calculated to benefit the employee”?
    6. Q: What does it mean for a contribution to be available to the employee for a minimum of twenty-four months from the date of the contribution? 
    7. Q: How does it work for an employee when an employer elects to make each reimbursement account contribution available for the minimum twenty-four months? 
    8. Q: If an employee’s reimbursement account balance is comprised of underlying contributions that expire on different dates, which individual contribution is debited when an employee is reimbursed for an eligible medical expense? 
    9. Q: What if an employer wants to maintain a policy whereby reimbursement account contributions expire at the end of a calendar year? 
    10. Q: Are there any specific requirements for the written summary of the contribution? 
    11. Q: Are there any rules regarding how the employer must distribute the Contribution Summary? For example, can it be sent electronically? 
    12. Q: Must an employer “roll-over” (i.e. continue to make available) contributions that remained outstanding in an employee’s reimbursement account at the end of 2011? 
    13. Q: How long must these roll-over funds remaining available? 
    14. Q: Are there any special rules or requirements when an employee “separates” from employment with a positive balance in a reimbursement account? 
    15. Q: How should a Covered Employer handle any funds earned – but not yet contributed – as of the separation date? 
    16. Q: Will a Covered Employer’s use of a reimbursement account to satisfy its obligation to make health care expenditures trigger additional reporting requirements? 
    17. Q: Are Health Reimbursement Arrangements subject to COBRA continuation coverage? 

 

 

 
1. Q. What is a reimbursement account?

A. A reimbursement account is a health savings account (as defined under Section 223 of the United States Internal Revenue Code and described in IRS Publication 969, PDF) or any other account having substantially the same purpose or effect as a health savings account. These include:

    • Health Reimbursement Accounts (also referred to as a Health Reimbursement Arrangement or HRA), regardless of whether the account is administered directly by a Covered Employer or administered by a Third Party Administrator on behalf of a Covered Employer;
    • Flexible Spending Accounts (FSAs); and 
    • Medical Savings Accounts (MSAs). 
    •  
    • Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts.  Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

2. Q: When does a contribution to a reimbursement account constitute a qualifying health care expenditure under the HCSO?

A: A contribution to a reimbursement account constitutes a qualifying health care expenditure if the employer’s contribution is “irrevocably paid to a third party on behalf of an employee” – meaning that the contribution can never revert to the employer.

Alternatively, if the contribution may revert to the employer, it must meet the following criteria in order to constitute a qualifying health care expenditure:

    • The contribution is reasonably calculated to benefit the employee;
    • The contribution remains available to the employee (and any other person eligible for reimbursement for health care expenses through the employee) for a minimum of twenty-four months from the date of the contribution; 
    • The employee receives a written summary of the contribution within 15 days of the date of the contribution; and 
    • Covered Employers satisfy two additional requirements with respect to separated employees.
    • Each of the above criteria, and the reimbursement account rules for separated employees, are discussed in greater detail in the following questions.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

3. Q: Do the HCSO rules regarding reimbursement programs impact contributions to the City Option?

A. No. These rules do not address or impact other types of qualifying health care expenditures, including contributions paid to the City Option.

 

 

4. Q: Can an employer contribute to a Flexible Spending Arrangement to satisfy the requirements of the HCSO?

A: No. Funds contributed to a Flexible Spending Arrangement (also known as a Flexible Spending Account or FSA) are only available to the employee for one calendar year. In order to qualify as a Health Care Expenditure under the HCSO, funds must be available to the employee for a minimum of twenty-four months.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013) 

 

5. Q: What does it mean for a contribution to be “reasonably calculated to benefit the employee” under the HCSO?

A: Reimbursement account contributions that meet the following two criteria are “reasonably calculated to benefit the employee”:

• The contribution is available to the employee for reimbursement of all IRS-eligible medical expenses, as defined in Section 213(d) of the Internal Revenue Code. See IRS Publication 502 (PDF), titled “Medical and Dental Expenses,” for more details;

• The Covered Employee is provided a minimum of 90 days, following the expiration of the funds, to submit a claim for the reimbursement of eligible medical expenses incurred prior to the expiration of the funds.

Covered Employers who make reimbursement account contributions that fail to meet either of the above criteria may be required to provide affirmative evidence that such contributions are nonetheless still reasonably calculated to benefit the employee.  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)


6. Q: Under the HCSO, what does it mean for a contribution to be available to the employee for a minimum of twenty-four months from the date of the contribution?

A: Health care expenditures must be made regularly, and no later than 30 days after the end of the preceding quarter. In order for a reimbursement account contribution to qualify as a health care expenditure, the Covered Employee must be entitled to seek reimbursement from the contributed funds for any eligible medical expenses incurred during the twenty-four month period following the date of the contribution.

Consider the following example. If an employer makes a contribution to an employee’s reimbursement account on April 15, 2012 (based on the hours “worked by” or “paid to” the employee in the first quarter of 2012), the contribution must remain available to the Covered Employee until at least April 15, 2014 in order to qualify as a health care expenditure under the HCSO. In other words, the employee can seek reimbursement from the account for eligible medical expenses incurred anytime between April 15, 2012 and April 15, 2014.

In order to qualify as health care expenditures, subsequent contributions made to the reimbursement account in July 2012 (for the second quarter), October 2012 (for the third quarter), and January 2013 (for the fourth quarter) must remain available for reimbursement of eligible medical expenses incurred until July 2014, October 2014, and January 2015, respectively.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

7. Q: Under the HCSO, how does it work for an employee when an employer elects to make each reimbursement account contribution available for the minimum twenty-four months?

A: Under this scenario, at any given time, the employee may have an account balance comprised of various underlying contributions, each with different expiration dates.

For example, an employee could have a reimbursement account balance of $5,000.00, where $800.00 is set to expire in one month, $500.00 is set to expire in four months, etc.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013) 


 

8. Q: Under the HCSO, if an employee’s reimbursement account balance is comprised of underlying contributions that expire on different dates, which individual contribution is debited when an employee is reimbursed for an eligible medical expense?

A: In order for reimbursement account contributions to qualify as health care expenditures, any disbursement for eligible medical expenses must be debited from the oldest contribution first (i.e. the one set to expire soonest). This is true regardless of the number or size of the underlying contributions that make up the total balance in the reimbursement account.  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

9. Q: What if an employer wants to maintain a policy whereby reimbursement account contributions expire at the end of a calendar year?

A: In order for reimbursement account contributions to qualify as health care expenditures under the HCSO, contributions must be made available for a minimum of twenty-four months from the date of the contribution. An employer is permitted to make contributions available for more than twenty-four months. So, for example, an employer could establish a plan whereby all 2012 contributions – regardless of when they were made during the year – remained available to the Covered Employee until the end of 2014. Similarly, 2013 contributions could be available until the end of 2015, and so on. This is an example of a plan design where contributions expire at the end of each calendar year (rather than quarterly throughout the year).

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

10. Q: Are there any specific requirements for the written summary of the contribution under the HCSO?

A: Yes. Employers are required to provide written summaries of reimbursement account contributions (“Contribution Summaries”) to Covered Employees within 15 days of the date of the contribution. Furthermore, the Contribution Summary must include the following information:

    • The name, address, and telephone number of any third party to whom the contribution was made;
    • The date and amount of the contribution; 
    • The date and amount of any other debits or credits to the account since the most recent Contribution Summary provided to the employee;
    • The balance in the account, and 
    •  Any applicable expiration dates for the funds in the account.

OLSE developed a sample Contribution Summary, which Covered Employers are permitted, but not required, to use as a model.  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)



11. Q: Are there any rules regarding how the employer must distribute the Contribution Summary under the HCSO? For example, can it be sent electronically?

A: The distribution of Contribution Summaries is not limited to any particular method, but it is the Covered Employer’s obligation to ensure that the Contribution Summaries are, in fact, provided to employees. Moreover, Covered Employers are obligated to keep all records necessary to establish compliance with the HCSO.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

12. Q: Under the HCSO Must an employer “roll-over” (i.e. continue to make available) contributions that remained outstanding in an employee’s reimbursement account at the end of 2011?

A: In order for reimbursement account contributions in 2012 and beyond to constitute qualifying health care expenditures under the HCSO, the employee’s reimbursement account must commence 2012 with an amount equal to the positive balance in the employee’s account on December 31, 2011.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

 

13. Q: How long must these roll-over funds remaining available?

A: A Covered Employer has two options with respect to the availability of roll-over funds.

The Covered Employer may treat these roll-over funds as a single new contribution made on January 1, 2012. This new roll-over contribution must remain available for the employee to seek reimbursement for eligible medical expenses incurred anytime before December 31, 2013 (i.e. twenty-four months from the January 1, 2012 contribution date).

Alternatively, the Covered Employer may make any roll-over funds available for twenty-four months from the date they were originally contributed in 2011 (or earlier).

Either way, the Covered Employer must comply with the requirement to provide a written summary of any contributions. The first Written Summary of 2012 should specify the expiration date of any roll-over funds.  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)



14. Q: Are there any special rules or requirements when an employee “separates” from employment with a positive balance in a reimbursement account?

A: Yes. In order for a reimbursement account contribution to qualify as a health care expenditure, the following two conditions must be met with respect to separated employees (e.g. employees who quit, are fired, etc.):

First, any remaining balance in the account at the time of separation must remain available to the employee (and any other person eligible for reimbursement for health care expenses through the employee) for a minimum of ninety days from the date of separation.

Second, the employee must receive, within three days following the separation, a written notice (“Separation Notice”), which shall include the balance in the account and any applicable expiration dates for the funds in the account.

OLSE developed a sample Separation Notice, which Covered Employers are permitted, but not required, to use as a model.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)



15. Q: Under the HCSO, how should a Covered Employer handle any funds earned – but not yet contributed – as of the separation date?

A: Under the HCSO, a Covered Employee may be entitled to health care expenditures for the quarter in which the employee separates from employment (based upon the hours paid prior to the separation).

The Covered Employer may satisfy this obligation by making a reimbursement account contribution at the time of separation, in which case an accounting of this contribution must be included in the Separation Notice.

Alternatively, the Covered Employer may satisfy this obligation by making a post-separation reimbursement account contribution (or otherwise making the health care expenditure) no later than 30 days after the end of the quarter. If the Covered Employer elects to make this final health care expenditure after the separation, the following three criteria must be met:

      1. The Separation Notice must indicate that the Covered Employee is entitled to a final health care expenditure (to be made prior to thirty after the end of the quarter),
      2. The separated employee must be provided a Contribution Summary within fifteen days of the post-separation contribution, and
      3. The post-separation contribution must remain available to the separated employee for at least 90 days from the date of the contribution.

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)





16. Q: Under the HCSO, will a Covered Employer’s use of a reimbursement account to satisfy its obligation to make health care expenditures trigger additional reporting requirements?

A: Yes. If a Covered Employer uses a reimbursement account to satisfy its obligation to make health care expenditures for any of its Covered Employees, the Employer will be required to report to OLSE, on an annual basis, the terms of such accounts, including what medical expenses are eligible for reimbursement. OLSE will provide specific guidance and instructions on this reporting requirement during the annual reporting process, which typically occurs in the April.  

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)

17. Q: Are Health Reimbursement Arrangements subject to COBRA continuation coverage?

A: The OLSE does not provide advice regarding compliance with federal laws, including COBRA. For an overview of some of the rules regarding the administration of HRAs, you may want to review IRS Notice 2002-45 (PDF). Section 7 of this Notice is entitled “COBRA Continuation Coverage,” and provides, in part, “An HRA is a group health plan generally subject to the COBRA continuation coverage requirements.”

Please note that the federal Affordable Care Act (ACA) has made significant changes to federal regulation and guidance regarding reimbursement accounts. Please review the FAQs on the HCSO and the Affordable Care Act for more information. (November 5, 2013)



 

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Last updated: 1/15/2014 12:26:45 PM