1) General ACA FAQs from Employers
a) Q: Is the HCSO Employer Spending Requirement scheduled to expire or go away when the ACA takes effect in 2014?
A: No, the HCSO Employer Spending Requirement is not scheduled to expire or go away when federal health reform takes effect in 2014. The ACA does not preempt or regulate the HCSO, and Covered Employers will be required to continue meeting the HCSO Employer Spending Requirement for their Covered Employees in 2014.
b) Q: Has the Affordable Care Act changed federal rules and requirements regarding the use of stand-alone Health Reimbursement Accounts (HRAs)?
A: Yes, the Affordable Care Act has made significant changes to federal regulation and guidance regarding Health Reimbursement Accounts that may impact the permissibility of such contributions under federal law. Consult these federal resources and proper counsel when deciding whether such contributions comply with the ACA:
The HCSO has not changed, and contributions to reimbursement programs, including HRAs, will continue to be valid health care expenditures for the purpose of meeting the HCSO’s Employer Spending Requirement. Section 14.1(b)(7)(A) of the HCSO establishes that contributions to a health savings account “or to any other account having substantially the same purpose or effect” are among the list of valid health care expenditures.
c) Q: If my business elects to no longer allocates funds to HRAs, what are my options to satisfy the HCSO's Employer Spending Requirement in 2014?
A: The options available to your business for satisfying the HCSO’s Employer Spending Requirement in 2014 and beyond remain the same.
The HCSO requires Covered Employers to make Health Care Expenditures to or on behalf of their covered employees each quarter. A Health Care Expenditure is any amount paid by a Covered Employer to its Covered Employees or to a third party on behalf of its Covered Employees for the purpose of providing health care services for Covered Employees or reimbursing the cost of such services for its Covered Employees.
Some examples of Health Care Expenditures that meet the requirements of the HCSO include:
- Payments to a third party to provide health care services for the Covered Employee, such as payments for health insurance or payments to a health care provider;
- Payments on behalf of the Covered Employee to the City Option;
- Contributions on behalf of the Covered Employee to a reimbursement program;
- Payments to the Covered Employee to reimburse the employee for costs incurred in the purchase of health care services; and,
- Costs incurred by the employer in the direct delivery of health care services for the Covered Employee.
d) Q: If my business elects not to make HRA contributions commencing in 2014, what happens to existing HRA balances at the end of 2013?
A: Please see FAQs Section O(3) below for more information on HRA balances remaining after December 31, 2013.
(Updated November 27, 2013)
e) Q: Will my business still be able to contribute to the “City Option” as a means of complying with the Employer Spending Requirement in 2014?
A: Yes, your business will be able to contribute to the “City Option” as a means of complying with the Employer Spending Requirement in 2014.
f) Q: How can I find out what new mandates the ACA places on my business?
A: The IRS website provides an overview of the tax provisions of the ACA that affect employers:
Note that he ACA was scheduled to impose new requirements on employers effective January 1, 2014. These were to include new reporting requirements and "shared responsibility payments" for certain employers who failed to provide affordable health insurance to full-time employees.
However, on July 2, 2013, the U.S. Department of Treasury announced that employers will not be subject to these requirements until 2015.
For more information, see the Department's announcement.
g) Q: What processes are under way to review the implementation of the ACA in San Francisco and examine how the ACA integrates with local policy?
A: Mayor Ed Lee reconstituted the Universal Healthcare Council to "examine San Francisco's implementation of the Federal Affordable Care Act (ACA) and engage stakeholders in identifying necessary local policies to support the implementation process." Changes to the HCSO could occur in the future if the Board of Supervisors takes legislative action or the OLSE adopts new regulations.
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2) General ACA FAQs from Employees
a) Q: What is the Individual Mandate of the Affordable Care Act?
A: Under The Affordable Care Act (ACA), starting in 2014, everyone must: 1) have minimum essential health coverage, 2) qualify for an exemption, or 3) pay a federal tax penalty.
Please note that receiving a health benefit from your employer does not necessarily meet the condition of having minimum essential health coverage. Please consult the following resources for more information:
b) Q: Where can I get more information about obtaining affordable health insurance for myself and/or my family?
A: The ACA provides new opportunities to get high-quality, affordable health insurance.
For more information, please check the following resources:
c) Q: My employer currently offers an HRA. Will I be able to seek reimbursements through the HRA for my out-of-pocket health care expenses in 2014?
A: Please see FAQs Section O(3) below for more information on HRA balances remaining after December 31, 2013.
(Updated November 27, 2013)
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3) FAQs on Remaining Balances in Stand-Alone Health Reimbursement Accounts
a) Q: Under the Health Care Security Ordinance (HCSO), what are an employer’s obligations with respect to unused funds credited to stand-alone HRA accounts before January 1, 2014?
A: To constitute a Health Care Expenditure on behalf of a Covered Employee, the HCSO requires that a contribution designated or paid to a reimbursement program, which is not irrevocably paid to a third party, remain available to the Covered Employee for a minimum of 24 months from the date of contribution.
b) Q: Given that most stand-alone HRAs will not comply with the requirements of the Affordable Care Act (ACA) that go into effect on January 1, 2014, will an employer face a federal tax penalty for continuing to administer its HRA (ie: without making new deposits) until the 24-month availability requirement is satisfied?
A: Probably not. Unused HRA funds credited before January 1, 2014, may still be used after December 31, 2013, in accordance with the terms of the HRA as they existed on January 1, 2013, without subjecting the employer to a penalty. However, the employer may not make any new contributions to non-ACA-compliant HRAs on or after January, 1, 2014, and some contributions made in 2013 may be subject to a ceiling.
c) Q: Can employees use remaining HRA funds to purchase health insurance through Covered California?
A: Possibly. If an employer’s HRA plan permits employees to seek reimbursement for health insurance premiums, employees may use HRA funds to reimburse the cost of health insurance premiums purchased through health care exchanges such as Covered California the same as any other health insurance coverage.
Please note, however, that employees with health reimbursement accounts will be ineligible for federal premium assistance tax credits (subsidies) when purchasing insurance through Covered California for any month in which HRA funds remain available to the employee. This is true regardless of whether the employee uses the HRA funds to buy insurance through the exchange, uses them for other reimbursable expenses, or does not use the funds at all.
d) Q: Are there any federal tax consequences for employees who have access to funds remaining in an employer’s Health Reimbursement Arrangement (HRA) after December 31, 2013?
A: Yes. The Internal Revenue Service considers an employee with a HRA to be enrolled in an employer-sponsored group health plan that constitutes “Minimum Essential Coverage.” Beginning January 1, 2014, the Affordable Care Act requires each individual taxpayer to have Minimum Essential Coverage or pay a tax penalty. Employees with HRAs will not be subject to this penalty. However, as noted in question 3, employees with HRAs will also be ineligible for federal premium assistance tax credits for any month in which the HRA funds remain available to the employee.
e) Q: Can employees opt out of HRAs and become eligible for federal premium assistance tax credits to assist with purchasing health insurance through Covered California?
A: Yes. Employees may forfeit the available funds. If they do so, those employees who meet certain residency, citizenship and income requirements and who do not have another source of Minimum Essential Coverage become eligible for federal premium assistance tax credits in the following month.
f) Q: If an employee opts out of an HRA and forfeits funds before the funds have been available for 24 months from the date of contribution, what are the employer’s responsibilities under the HCSO?
A: If an employee opts out of an HRA and forfeits available funds before those funds have been available for a minimum of 24 months from the date of contribution, the forfeited funds do not constitute Health Care Expenditures and do not satisfy the employer’s obligations under the Employer Spending Requirement of the HCSO. A contribution designated or paid to a reimbursement program, which is not irrevocably paid to a third party, constitutes a health care expenditure only if that contribution remains available to the employee for a minimum of 24 months from the date of contribution and meets other conditions described in Section 14.1(b)(7)(B) of the Ordinance. If the forfeited funds were not available for a minimum of 24 months, the employer will be required to make a valid Health Care Expenditure of an equivalent amount through another HCSO compliance strategy. See FAQ O(1)(c) for examples of Health Care Expenditures.
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4. FAQs on Excepted Benefits
a) Q. What are “Excepted Benefits”?
“A. Excepted benefits” is a term used in the Affordable Care Act to describe certain kinds of health benefits that are “excepted” from some of the market reform requirements that the ACA requires other group health plans to meet. Excepted benefits are not “minimum essential coverage” and do not affect an employee’s eligibility to receive a premium assistance tax credit when buying insurance on Covered California. Employers can provide excepted benefits whether or not they also provide health insurance.
Section 9832(c) of the Internal Revenue Code and its accompanying regulations contain the full list of excepted benefits and place some limits on how they can be offered. But only some of those excepted benefits also qualify as “health care services” under the HCSO. Those benefits are:
• dental benefits limited to treatment of the mouth;
• vision benefits limited to treatment of the eye;
• medical indemnity insurance;
• long-term, nursing home, home health, or community-based care; and
• coverage limited to a specific disease or illness.
Employers can provide excepted benefits to employees directly, through insurance, or by providing health reimbursement arrangements (HRAs).
b) Q. Do employer payments for excepted benefits insurance premiums count as health care expenditures under the HCSO?
Yes. Insurance premiums paid irrevocably to a third party for excepted benefits insurance plans that provide health care services constitute valid health care expenditures. Irrevocable payments to a third-party vendor for premiums for dental insurance, vision insurance, medical indemnity insurance, long-term, nursing home, home health, or community-based care insurance, and insurance limited to a specific disease or illness all count towards an employer’s minimum required expenditures under the HCSO.
c) Does an employer’s spending on a self-funded/self-insured excepted benefits plan qualify as a Health Care Expenditure under the HCSO?
Yes. Expenditures for self-insured health plans, including self-insured plans that only provide excepted Benefits, qualify as health care expenditures under the HCSO.
d) How does an employer that uses a self-funded/self-insured excepted benefits plan determine whether it has satisfied the Employer Spending Requirement of the HCSO?
HCSO Regulation 6.2(B)(2) provides that “[a] covered employer that provides health coverage to some or all of its covered employees through a self-funded/self-insured plan shall, with respect to those employees, be deemed to comply with the spending requirement of this Ordinance if the preceding year’s average expenditure rate per employee meets or exceeds the applicable expenditure rate (outlined in Regulation 5) for that employer.”
Accordingly, after the first year that the employer uses the self-insured/self-funded plan, the employer will receive credit for health care expenditures based on the previous year’s average actual expenditures per employee.
For the first plan year, the employer shall receive credit toward the employer spending requirement in the amount of the average actual expenditures per covered employee during the initial plan year. In order to receive credit for expenditures on self-insured/self-funded excepted benefits plans, the employer must request credit at the end of the calendar year and provide supporting documentation of actual expenditures on covered employees.
e) Do employer contributions to excepted benefit HRAs count as health care expenditures that satisfy the employer spending requirement under the HCSO?
Yes, provided they satisfy the HCSO’s additional requirements for contributions to HRAs. If the unused portions of contributions to a HRA will revert to the employer, then the contributions only qualify as “health care expenditures” if: 1) they are reasonably calculated to benefit the employee; 2) the funds remain available to the employee for 24 months after the date of the contribution; 3) the employer provides the employee with written notice of the contribution within 15 days; and 4) the employer meets additional requirements regarding separated employees. See FAQ F14 for additional information about separated employees.
f) How will OLSE determine whether a contribution to an excepted benefits HRA is “reasonably calculated to benefit the employee”?
OLSE considers an employer’s contributions to an excepted benefits HRA that do not exceed the employer’s spending requirement for an employee who works an average of 20 hours per week to be reasonably calculated to benefit the employee, provided that the contributions meet all of the following criteria:
(1) The contribution may be used without restriction for full reimbursement of all excepted benefits that are also qualifying “health care expenditures” under the HCSO (see FAQ O(4)(a) for a list of those excepted benefits);
(2) The employee has at least a 90-day grace period after the contribution expires to submit claims for reimbursable expenses that the employee incurred before the contribution expired; and
(3) The criteria listed in (1) and (2) are in place at the beginning of the initial plan year or on April 1, 2014, whichever is later.
g) What if my company’s excepted benefits HRA plan does not meet the criteria in FAQ O(4)(f) or I make contributions in excess of my employer spending requirement for a 20-hour-per-week employee? Will OLSE still count my contributions toward satisfying my employer spending requirement?
Possibly. The HCSO does not control the terms and conditions the employer places on an excepted benefits HRA, nor does it place any limit on the dollar amount of contributions an employer can make on behalf of its employees. Employers retain complete discretion over those decisions regardless of the HCSO. Accordingly, OLSE anticipates that some employers will choose to make contributions to excepted benefits HRAs under different terms or in greater amounts than those described in FAQ O(4)(f). OLSE will credit such contributions toward the employer spending requirement as follows:
i) Employer contributions to an excepted benefits HRA that does not meet one or more of the criteria in FAQ O(4)(f).
To receive credit for contributions to an excepted benefits HRA that does not meet the criteria in FAQ O(4)(f), the employer must request credit at the end of the calendar year and provide supporting documentation showing that its contributions were reasonably calculated to benefit the employee. OLSE will presume that the contributions were reasonably calculated to benefit the employee if the reimbursement rate for the plan meets or exceeds the average reimbursement rate for excepted benefits HRAs that do comply with the criteria in FAQ O(4)(f). That presumption is rebuttable, and OLSE retains discretion to consider other factors, such as employee complaints, employer restrictions on reimbursable expenses, the employer’s compliance with employee notification and reporting requirements, and other indicators of the employer’s good faith. Reliance on advice from trade associations, brokers, or other private market actors will not be considered in determining employer good faith. If OLSE determines that the employer has not made the minimum required health care expenditures, the agency will require the employer to make remedy payments in the amount of the unmade health care expenditures and will assess penalties for noncompliance.
ii) Employer contributions to an excepted benefits HRA that meets the criteria in FAQ O(4)(f) but exceed the employer spending requirement for an employee working an average of 20 hours per week.
Excess contributions will be credited toward the employer spending requirement in the amount that the employee actually uses the excess contributions. To receive credit for excess contributions, the employer must request credit at the end of the calendar year and provide supporting documentation of the employee’s actual use.
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