Health Care Reform Impacts on HRA, HSA, FSA Plans
Health care reform has specific impacts on health plan spending accounts that clients and customers will want to know. The impacts may change the way customers plan for and use their HRAs, HSAs or FSAs. Specifically, there are a number of changes related to over-the-counter eligibility for reimbursement, penalties on HSA distributions and reimbursement for expenses of dependents.
Over-the-counter eligibility for reimbursement – For purchases beginning Jan. 1, 2011, money from health plan spending accounts (HRA, HSA and FSA) will no longer be available to pay for most over-the-counter drugs and medicines without a doctor’s prescription. We expect the Secretary of Health and Human Services to release details on both the type of documentation required, as well as the specific medications which will need documentation for reimbursement, and will update you upon receiving guidance. Up-to-date lists of drugs and medicines that will require a prescription – and those items that will not – can be found at CIGNA’s health care reform website, informedonreform.com.
Penalties on HSA distributions – Starting Jan. 1, 2011, the tax penalty on HSA distributions that are not used for qualified expenses will increase from 10 percent to 20 percent of the disbursed amount.
Reimbursement for expenses of dependents – With the exception of dependent coverage to age 26, there are a few items for clients to consider for their employees. Money from HRA and FSA accounts may be used for eligible expenses incurred by all covered dependents. However, clients may also offer retroactive FSA reimbursement for expenses incurred by a child to age 26 – as far back as March 30, 2010. The IRS Ruling (2010-38) allows for this exception as long as the client amends their cafeteria plan documents by Dec. 31, 2010*. However, no matter what a client establishes in their plan, money from an HSA may only be used for eligible expenses incurred by covered dependents that meet the federal government’s definition of a tax dependent.
If your clients renew benefits off the calendar year (not on January 1), it’s important for their employees to understand that these changes are effective on Jan. 1, 2011, and are not tied to plan years or renewal dates.
We’ll continue to update you on important issues that could impact you and your clients. In the meantime, should you have any issues of immediate concern, please contact your CIGNA representative. You’ll also find the latest information at CIGNA’s constantly updated health care reform website, informedonreform.com.
* Under certain circumstances, extending FSA coverage to dependents up to age 26 may be optional. A company’s legal counsel can determine if the FSA plan is required to provide this extension of coverage.
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