Outlook for TFAs
Trish Neely, CFCI
Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Medical Flexible Spending Arrangements (MFSAs) are individual account-based health plans; HRAs and HSAs are also linked to health plans. What is their future post-Supreme Court Ruling?
First what we know: PPACA’s requirement that MFSA employee contributions be capped to $2,500 goes into effect in 2013; and the increased penalty for non-qualified HSA distributions from 10% to 20% already became effective in 2011. The IRS is considering allowing MFSA balances to roll forward which would make the MFSA more attractive for employees. See companion article.
An issue for the HRA and HSA is determining the minimum actuarial value of the linked high deductible health plan. We have some guidance (IRS Notice 2012-31) but still some challenges for the individual and small and large group markets. For all three types of accounts, the Cadillac tax which goes into effect in 2018 could cause employers to reassess ancillary benefits and cut or eliminate some benefits to avoid the excise tax on “high cost” plans.
The industry continues to assess how the accounts are likely to be impacted; the upcoming ECFC conference will spend some time looking at likely outcomes. We will keep you posted.
Use it or Lose it: Is it time for this rule to go?
Florrie Jones, CFC
Employer plans that begin on or after January 1, 2013 must limit the amount of money that each employee can contribute to a medical flexible spending arrangement (MFSA) to $2500.
This limit has prompted the IRS to reconsider whether the present use-or-lose rule still makes sense.
When there was no cap (except what an employer required) the IRS wanted to assure that MFSAs were not used as a vehicle for deferring compensation; the cap makes that far less likely. In Notice 2012-40 the IRS gave interested parties an opportunity to submit comments on whether the use-or-lose rule should be modified and how any such modifications should interact with the $2,500 cap. “Use it or lose it” has always been a thorn to employees wanting to participate but afraid they might overestimate and forfeit money. It has been a challenge to employers wanting to increase participation and thereby assure an acceptable ratio of participation amongst HCEs and non-HCEs for non-discrimination testing purposes.
If you are interested in commenting, note that the IRS will accept written comments until August 17, 2012. Make sure you include “Notice 2012-40” in the subject line. Click Here to comment.