Legislation & Regulations Impacting Employee Benefits

The Internal Revenue Service (IRS) increases contribution limits for Health Savings Accounts (HSAs), high deductible health plans (HDHPs) and out-of-pocket maximums annually. The increases for HDHP minimum annual deductibles and out-of-pocket maximums allow plan sponsors more flexibility when determining potential deductibles.

2023 HSA Limits

• HSA Contribution Limits
  • Individual with self-only HDHP coverage: $3,850 per year
  • Individual with family HDHP coverage: $7,750 per year
  • Individuals ages 55 or older can make additional “catch-up” contributions of up to $1,000
• Minimum HDHP Annual Deductibles
  • Individual with self-only HDHP coverage: $1,500 per year
  • Individual with family HDHP coverage: $3,000 per year
• HDHP Out-Of-Pocket Maximums (includes co-insurance, copayments and deductibles)
  • Individual with self-only HDHP coverage: $7,500 per year
  • Individual with family HDHP coverage: $15,000 per year

2022 HSA Limits

• HSA Contribution Limits
  • Individual with self-only HDHP coverage: $3,650 per year
  • Individual with family HDHP coverage: $7,300 per year
  • Individuals ages 55 or older can make additional “catch-up” contributions of up to $1,000
• Minimum HDHP Annual Deductibles
  • Individual with self-only HDHP coverage: $1,400 per year
  • Individual with family HDHP coverage: $2,800 per year
• HDHP Out-Of-Pocket Maximums (includes co-insurance, copayments and deductibles)
  • Individual with self-only HDHP coverage: $7,050 per year
  • Individual with family HDHP coverage: $14,100 per year

Per IRS regulations, pretax employee contributions to Health Flexible Savings Accounts (FSAs) will be capped at $3,050 as of January 1, 2023. Some important rules regarding the cap include:

• Works on an individual employee basis. If two spouses are eligible for the same employer’s FSA, they each can file separately to have their own $3,050 cap.
• If the cafeteria plan mistakenly allows an FSA to exceed the new limit, the enrollee will not face disqualification for the administrative mistake.
• Applies only to salary reduction contributions under an FSA; does not apply to employer-provided contributions, also referred to as flex credits.
• Is distinct from the contribution limit for reimbursement under an FSA for dependent care assistance.
• Does not apply to salary reduction or any other contributions made to a Health Savings Account or Health Reimbursement Arrangement.
• The limit may be adjusted periodically for changes in the cost of living.
• The limit applies on a plan year basis.
• Employers may elect lower contribution limits. Please check your plan documents.

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 gives veterans the option to make pre-tax Health Savings Account (HSA) contributions while they receive hospital care or medical services for a service-connected disability, beginning 2016. Previous legislation disqualified veterans from making HSA contributions for any month that they received any VA benefits at any time during the previous three months. The new legislation applies only to those employees receiving VA benefits and not TRICARE which is administered by the Department of Defense.

For health care FSA plans that allow a carryover of unused funds, the maximum carryover amount set by the IRS is $610, as of January 1, 2023.

PPACA’s restriction on imposing annual dollar limits as stated in Section 2711 of the Public Health Service Act means some changes for Health Reimbursement Arrangements (HRAs). Starting January 1, 2014, HRAs combined with a traditional group health plan that complies with the regulations does not violate the law and would be allowed to have an annual limit. However, stand-alone HRAs not integrated with group medical plans may not be able to exist under most scenarios. Despite the fact that there will be some exceptions as to how HRAs are to be used, they will most likely continue to thrive once all the provisions of the Patient Protection and Affordable Care Act (PPACA) are fully implemented.

The PPACA and the Internal Revenue Service (IRS) state the following regulations regarding Health Reimbursement Arrangements (HRAs):

• Free-standing HRAs to cover medical expenses can no longer be offered for plan years beginning January 1, 2014 or later.
• HRAs offering money to pay for premiums individually purchased and billed to their home are no longer permitted.
• HRAs tied to a compliant group health plan are allowed.

Qualified Small Employer Health Reimbursement Arrangements (“QSEHRAs”)

The 21^st Century Cures Act, signed into law in December 2016, allows certain small employers to offer stand-alone HRAs and to not have them implicate the PCRA group health plan rules. Qualified Small Employer Health Reimbursement Arrangements (“QSEHRAs”) are limited to employers with less than fifty full time or equivalent employees that do not offer a group health plan. Employers alone must fund QSEHRAs, employee contributions are not allowed. Additional guidance was issued by the IRS in Notice 2017-67.

Health Flexible Spending Accounts (FSAs) can continue to be offered by employers and impose an annual dollar limit. However, the FSA cannot be the only program offered. An employer must also offer group medical coverage. The FSA and group medical plan do not have to be integrated. In other words, an employee could elect only the FSA. Both, however, must be offered.

PRAs under PPACA

A Premium Reimbursement Account (PRA) is a type of Flexible Spending Account (FSA) that allows employees who are not covered on a group health plan to pay their individual premiums on a pre-tax basis.

Under the Patient Protection and Affordable Care Act, the following changes regarding PRAs go into effect:

• Starting Jan. 1, 2014, tax-exempt money cannot be used for PRAs. PRAs can still successfully operate to help employees buy coverage and pay their premiums on time.

On June 26, 2013, the Supreme Court ruled that Section 3 of the federal Defense of Marriage Act, or “DOMA,” was unconstitutional. DOMA provided that only individuals of the opposite sex can be officially recognized as being married or spouses to one another. Since it was overturned, there have been immediate implications for employers who offer retirement, fringe benefits and health insurance benefits to employees whose same-sex marriages were performed in states where same-sex marriages are permitted or recognized.

On December 16, 2013, the IRS issued guidance that employees can now elect pre-tax coverage of their same-sex spouse under their health and dependent care flexible spending arrangements (FSAs) and HSAs, per the Windsor ruling regarding DOMA.

Legally married, same-sex spouses can now not only be covered under an employer-sponsored health plan, but they can also use tax-free funds stashed in an employer’s FSA, HRA or HSA for qualified medical expenses for health, dental and vision services. Before DOMA was overturned, FSA and HSA consumers could not reimburse expenses for their same-sex partners, and while HRA consumers could, they could not do so without imputation of income.

The guidance results in a number of possible actions by employers or employees because it instructs that: employees may make a mid-year election change due to a change in legal marital status; employers may need to re-characterize amounts paid by employees for their spouse’s health coverage as pre-tax salary reductions; and, employees may seek a refund for federal income tax and federal employment tax amounts paid on an after-tax basis for their spouse’s health coverage where that coverage can now be considered a pre-tax salary reduction.

Dependent Care FSAs cover day care needed for the FSA owner to work and include care costs for tax dependents under the age of 13 or an elderly parent or spouse who is physically or mentally incapable of self-care and lives with the FSA owner.

• Couples who are married can file a joint return, as well as single parents; can contribute up to $5,000 in a Dependent Care FSA.
• Couples who are married who file separately can put a maximum of $2,500 each into a Dependent Care FSA.

For 2023, Qualified Transportation Benefits monthly pre-tax limits will remain the same at $300/month for transit passes and $300/month for parking (just as it was in 2020). Employers may, at their discretion, increase monthly pre-tax contributions to align with the current limits set by the IRS.

As of July 1, 2022, employees may claim a medical deduction of 22 cents per mile they drive using a car, van, pickup or panel truck for medical care. Some examples include trips to the pharmacy and visits to doctors, therapists and other medical specialists. If workers take buses, taxis, trains or subways, they can be reimbursed for the full amount.

Under the ACA, companies are required to extend their employee health coverage to include dependents – which include biological, foster and adopted children – until they are 26 years old. This is mandatory regardless of whether the dependents have the opportunity to enroll in health insurance on their own, as of September 23, 2010. The only exceptions to this rule are grandfathered plans, which do not have to provide coverage to young adults who can enroll in another employer-sponsored health plan, until January 1, 2014.

For the purposes of tax-advantaged account and employer health plan coverage, the definition of “dependent” was extended to all children under age 27 on March 30, 2010. This change amends definition of dependent in Code Section 105(b) only.

• Parents may use FSA & HRA funds for children who are under age 27 for entire tax year.
• All children under age 27 for the entire tax year qualify, including: natural/adopted/step children; children living at home or away; children in school or out of school; married or single children.
• For HSAs, tax and penalty free distributions may still only be made to children who are tax-dependents, not all children under the age of 27. However, a child still covered by your HSA-qualified HDHP may be eligible to establish their own HSA if they meet all other eligibility requirements.

HSA-qualified HDHPs are required to cover 100% of preventative care, per a requirement that all health plans cover minimum prevention benefits. “Grandfathered” plans are exempt from the preventative care requirement; regulators defined “grandfathered” as plans that existed as of March 23, 2010, and have not been substantially changed since. This requirement was effective the first plan year on or after September 23, 2010.

Contraceptive methods and counseling are now considered preventative care and have to be covered by health insurance. For most plans, this went into effect on Jan. 1, 2013. There are exemptions for certain religious employers that meet certain criteria. For those who wish to be exempted, but do not meet all the criteria, the HHS has delayed the enforcement to the provision, which was originally set for August 2013, and has proposed accommodation.

Certain States, including Maryland, have enacted laws requiring first-dollar coverage of male sterilization by all fully-insured health plans in the state. The IRS has not, so far, issued a ruling on whether male sterilization is preventive care for purposes of determining HSA eligibility. There is currently confusion in the marketplace because it is unclear whether or not a fully-insured plan issued in Maryland can be an HSA-eligible HDHP.