Employee Benefits-IRS Provides Guidance On The Application Of The ACA To Health FSAs

In Notice 2013-54, the Internal Revenue Service (the “IRS”) provides guidance, in the form of Q and As, on the application of the Affordable Care Act (the “ACA”) to, among other things, certain health flexible spending arrangements (“health FSAs”). Here are some highlights:

–The requirements of the ACA do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits-and not be subject to the ACA requirements- if (1) the employer also makes available group health plan coverage that is not limited to excepted benefits and (2) the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election).

–If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the ACA requirements, and will be treated as failing to meet the ACA preventive services requirements (but not as failing the annual dollar limitation prohibition, so long as the health FSA is offered under a Code § 125 cafeteria plan).

The rules in the Notice generally apply for plan years beginning on and after January 1, 2014, but taxpayers may apply the guidance provided in the Notice for all prior periods.