Compliance Matters: Is Our Health FSA an Excepted Benefit?

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The Affordable Care Act (ACA) requires healthcare flexible spending accounts (health FSAs) to be considered an “excepted benefit” to avoid being subject to the ACA market reform provisions (e.g., preventive services requirements). In general, there are two requirements for a health FSA to be considered an excepted benefit:

1. Employees eligible for the health FSA must also be eligible for the employer’s group major medical plan. This is sometimes known as the “footprint rule” – meaning the eligibility rules for the health FSA cannot have a bigger “footprint” than the eligibility “footprint” of the employer’s group major medical plan.
   
   • e.g., RIN Manufacturing requires employees to work a minimum of 30 hours a week to be eligible for their group major medical plan. Therefore, to comply with the ACA’s excepted benefit requirements, employees must also work a minimum of 30 hours a week to be eligible for their health FSA.RIN’s waiting period for their major medical plan is first of the month following 60 days of employment. Therefore, to satisfy the ACA excepted benefit rules, the waiting period for the health FSA must also be at least first of the month following 60 days of employment.
   
   


2. If the employer contributes to the health FSA, the maximum contribution provided by the employer cannot exceed $500, unless the employer is matching the employee’s contribution dollar for dollar.

An employer who does not offer group health insurance coverage may not offer a health FSA. Likewise, an employer must make available group health plan coverage to all employees whom which they are also offering the health FSA in order to meet the excepted benefit test. An employee does not need to enroll in the major medical plan; however, they do need to be eligible to participate in it.

Under the ACA, an employer providing a health FSA that does not qualify as excepted benefits is a violation of ACA market reforms and the employer could be subject to $100/day per employee penalties under IRC § 4980D.

 

This content was written by Michelle Turner, MBA, CEBS, Compliance Consultant, Alera Group Central Region. This blog post intends to provide general information regarding the status of, and/or potential concerns related to, current employer HR & benefits issues. This blog should not be construed as, nor is it intended to provide, legal advice. The opinions expressed herein are based upon the author’s experience as a Compliance Consultant and may not reflect the opinions of your counsel.

The information contained herein should be understood to be general insurance brokerage information only and does not constitute advice for any particular situation or fact pattern and cannot be relied upon as such. Statements concerning financial, regulatory or legal matters are based on general observations as an insurance broker and may not be relied upon as financial, regulatory or legal advice. This document is owned by Alera Group, Inc., and its contents may not be reproduced, in whole or in part, without the written permission of Alera Group, Inc.

This article was last reviewed and up to date as of 01/19/21.