1) Questions from Employers
a) Q: Has the Affordable Care Act changed federal rules and requirements regarding the use of stand-alone medical Health Reimbursement Accounts (HRAs)?
A: Yes. On January 1, 2014, the Affordable Care Act made significant changes to federal regulations and guidance regarding Health Reimbursement Accounts that may impact the permissibility of such contributions under federal law. Employers may wish to consult these federal resources and proper counsel when deciding whether Health Care Expenditures to a particular HRA comply with the ACA:
b) Q: Does the ACA affect my ability to contribute to the “City Option” as a means of complying with the Employer Spending Requirement?
A: No. You can continue to contribute to the City Option as a means of complying with the Employer Spending Requirement, just as before. See Section G for more information
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2) Questions from Employees
a) Q: What obligations do I have under the Affordable Care Act?
A: Under the “Individual Mandate” of the Affordable Care Act (ACA), everyone must: 1) have health benefits that satisfy the standard of “minimum essential health coverage;” or 2) qualify for an exemption (based on income or other factors); 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: Do the benefits provided by my employer under the HCSO satisfy my obligations to have “minimum essential health coverage” under the ACA?
A: That depends on what benefits your employer provides. Employer-sponsored medical insurance generally constitutes minimum essential coverage and satisfies your individual responsibility under the ACA. Having access to funds in a stand-alone medical Health Reimbursement Account (HRA), i.e., one that can be used for most kinds of medical expenses (not just dental and vision), is also considered minimum essential coverage.
The following benefits do not satisfy your obligation to have “minimum essential coverage” under the ACA:
- the City Option - includes Healthy San Francisco and Medical Reimbursement Accounts or MRAs;
- excepted benefits Health Reimbursement Accounts (HRAs) –employer-sponsored accounts that reimburse you for your out-of-pocket costs for a limited range of expenses, including vision and dental expenses. (See Section O, Question 3(b) for more information);
- dental insurance; and
- vision insurance.
If your employer only provides you with the types of benefits above that do not constitute minimum essential coverage, you still need to get coverage elsewhere that satisfies the requirements of the ACA (or pay the penalty).
c) Q: Can I use remaining stand-alone medical HRA funds to purchase health insurance through Covered California?
Yes, unless your employer’s HRA plan explicitly prohibited reimbursements for health insurance premiums as of January 1, 2014. If the HRA plan did not have that limit at that time, then you may use their remaining pre-2014 HRA funds to reimburse the cost of health insurance premiums. It does not matter where you purchase the health insurance.
d) Q: Are there any federal tax consequences if I have a balance remaining in a stand-alone medical HRA?
A: Yes. If you have a balance in a medical HRA (i.e. an HRA that covers more than just the limited excepted benefits discussed in Section O, Question 3(a) below), the Internal Revenue Service considers you to have “Minimum Essential Health Coverage.” Because the Affordable Care Act requires each individual taxpayer to have Minimum Essential Health Coverage or pay a tax penalty, you will not be subject to this penalty.
Please note, however, that if you have Minimum Essential Health Coverage because you have a balance in a medical HRA, you are not eligible for federal premium assistance tax credits (subsidies) when purchasing insurance through Covered California for any month in which the medical HRA funds remain available. This is true regardless of whether you use the HRA funds to buy insurance through the exchange, use them for other reimbursable expenses, or do not use the funds at all.
e) If I waive the remaining balance in a stand-alone medical HRA, will I be eligible for federal premium assistance tax credits to assist with purchasing health insurance through Covered California?
A: Yes, if you meet the federal eligibility criteria. If you voluntarily elects to waive your rights to any remaining pre-2014 medical HRA funds, meet certain residency, citizenship and income requirements, and do not have another source of Minimum Essential Health Coverage, you should be able to receive federal premium assistance tax credits in the following month. See Section F, Question 7 for more information about waiving pre-2014 medical HRA funds.
f) 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. More individuals and families now qualify for Medi-Cal, which provides comprehensive medical and mental health services at no cost. Others may qualify for federal insurance subsidies to help offset the cost of health insurance purchased through Covered California, the state’s Health Insurance Exchange. For more information, please check the following resources:
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3. 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 requirements that the ACA places on other group health plans with more comprehensive medical coverage. 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 accounts (HRAs) that reimburse employees for these services.
b) Q. Do employer payments for excepted benefits insurance premiums count as Health Care Expenditures under the HCSO?
A: Yes, as long as the insurance is for excepted benefits that are also Health Care Services (see Question 3(a) above). For example, dental insurance and vision insurance premium payments count towards an employer’s Required Expenditures.
c) Q: Does an employer’s spending on a self-insured excepted benefits plan qualify as a Health Care Expenditure under the HCSO?
A: 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) Q: Do an employer’s Revocable Expenditures to an excepted benefit HRAs count as Health Care Expenditures that satisfy the Employer Spending Requirement under the HCSO?
A: Yes, but only if the expenditures a) satisfy the HCSO’s additional requirements for Revocable Expenditures outlined in Section F Question 4, and b) are “reasonably calculated to benefit the employee,” as discussed below.
Note: Even if all of the above conditions are met, Revocable Expenditures can only comprise 40% of Required Expenditures for a given employee for Hours Payable in each quarter of 2015, and 20% for Hours Payable in each quarter of 2016.
e) Q: How will the OLSE determine whether a revocable contribution to an excepted benefits HRA is “reasonably calculated to benefit the employee”?
A: The OLSE considers an employer’s revocable contribution to an excepted benefits HRA to be reasonably calculated to benefit the employee when the contribution meets the following criteria:
1) Subject to the federal tax rules for HRAs, the contribution may be used without restriction for full reimbursement of all excepted benefits that are also qualifying Health Care Expenditures” under the HCSO; and;
(2) The employee has at least a 90-day grace period after a contribution expires to submit claims for reimbursable expenses that the employee incurred before the contribution expired.
For calendar year 2014, the OLSE will consider an employer’s revocable allocations 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 the criteria above. See Section P on Expenditures and Enforcement in 2014 for more information.
f) Q: What if my company’s revocable allocations to an excepted benefits HRA plan do not meet the criteria in Section O, Question 3(e) above? Will the OLSE still count my contributions toward satisfying my Employer Spending Requirement?
A: 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, the OLSE anticipates that some employers will choose to make contributions to excepted benefits HRAs under different terms than those described in Section O, Question 3(e). The OLSE will credit such contributions toward the Employer Spending Requirement as follows:
To receive credit under the HCSO for revocable contributions to an excepted benefits HRA that does not meet the criteria in Section O, Question 3(e), 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. The 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 Section O, Question 3(e). That presumption is rebuttable, and the 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 the OLSE determines that the employer has not made the minimum Required Health Care Expenditures, it will require the employer to make remedy payments in the amount of the unmade Health Care Expenditures and will assess penalties for noncompliance.
g) Q: What happens if an employer makes Revocable and Irrevocable Expenditures to excepted benefits HRAs in 2015 and 2016?
A: If an employer opts to make both Revocable and Irrevocable Expenditures to excepted benefits HRAs, the employer must ensure that:
- The Irrevocable Expenditures have been paid to a third party administrator and are not “retained” by the employer (See Section F, Question 2)
- All reimbursements actually paid to the Covered Employee are deducted from the available Revocable Expenditures before any reimbursements are deducted from the Irrevocable Expenditures;
- The employer’s Revocable Expenditure Summaries explain that an employee has a limited time period to use Revocable Expenditures and unlimited amount of time to use Irrevocable Expenditures;
- The employer’s Revocable Expenditure Summaries include the amount of the Revocable Expenditures available to the Covered Employee as well as the amount of Irrevocable Expenditures available (see Section F, Question 8 for more information on notifications);
- The employer or administrator maintains records regarding the balance of Irrevocable Expenditures made to an excepted benefits HRA for as long as there is a positive balance of funds in the account and provides information on the balance and the types of expenses that will be reimbursed to the employee (or former employee) upon request.
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