Brian Gilmore

I would view this in the other direction--meaning the employer should take steps to immediately remove all §213(d) expenses from the LSA. And also look for a new LSA TPA for not flagging the issue! I suppose in theory you could offer COBRA for the LSA, but it is not clear how that would operate given (as you noted) there are health and non-health components to the plan. I think you could treat it like an EAP and make all types of benefits (including non-medical) available through COBRA, or try to segregate a medical-only component that is accessible through COBRA. I'm doubtful the TPA could do that, but in theory it could work. To me that would be the least of the concerns, though. Think of all the issues with the LSA that could not be readily addressed: ERISA plan doc/SPD HIPAA privacy/security PCORI fees §105(h) nondiscrimination ACA reporting ACA integration to satisfy market reform provisions HSA eligibility Multiple CAA potential issues So I would recommend against trying to shoehorn a COBRA approach into this, and instead reverse course on the medical benefit inclusion asap. More details: https://www.newfront.com/blog/lifestyle-spending-account-compliance-considerations Slide summary: 2025 Newfront Fringe Benefits for Employers Guide

Almost never. Pretty much all plans offer coverage to spouses/children (and sometimes domestic partners). But the ACA does not require offering coverage to a spouse (it requires only the full-time employee and children). So it can be done without penalty exposure.

These are often structured as spousal surcharges. As you noted Peter, they are close to unenforceable. It is nearly impossible to verify whether an employee’s spouse has access to other coverage. Without the teeth of any effective audit potential, these generally need to be run on the honor system—which can lead to employee fraud issues. More discussion: https://www.newfront.com/blog/conditional-offer-coverage-spouses-2 That's part of the reason spousal incentive HRAs (SIHRAs) have become a more popular alternative lately. That carrot of that approach is instead to reimburse employees for cost-sharing amounts incurred under the spouse's plan. I consider it a superior approach. More discussion: https://www.newfront.com/blog/ten-spousal-incentive-hra-compliance-considerations

I don't think you're missing anything. The IRS could always audit and find it, but it would be quite difficult because (as you said) there is no W-2 reporting of the health FSA. In theory it would have to involve review of paystubs or interaction with the employer to confirm. But as noted above, there are many aspects like this in tax liability where it would be difficult to discover the issue. A rolling 6% excise tax on the ineligible HSA contributions that could apply is also no joke.

No, that's a common plan design structure I've seen.

Offering health coverage to your employees and their standard dependents is of course a single employer plan. But at what point does the offering become a MEWA when offering to anyone else? For example, would it still be a single employer plan if it covered employee's neighbors? At some point there's line in the sand, we just don't know exactly where it is. For example, it's generally understood that offering coverage to a independent contractors would create a MEWA because they are not employees/dependents of the company. Is it really any different when covering an unrelated surrogate? It's hard to say. More discussion if you're interested: https://www.newfront.com/blog/addressing-employee-health-plan-exception-requests1 Here's the main cite: ERISA §3(40): (40) (A) The term “multiple employer welfare arrangement” means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries... Here's a helpful reference: https://www.americanbar.org/content/dam/aba/events/employee_benefits/technicalsessions/2005_dol.pdf A follow-up question was asked regarding an arrangement offering or providing health benefits maintained by one employer and covering common law employees of the employer and several independent contractors. DoL staff indicated that they would generally read the reference to self-employed individuals in section 3(40) as resulting in such arrangements being MEWAs.

Interesting, that seems very MEWA-ish to me. But I don't doubt that you're right it occurs in the field. I just wonder what they're argument is for avoiding MEWA status. Making it taxable should have no relevance from a DOL/MEWA perspective. Have you asked any of these vendors their position on the issue?

Yeah for medical there are the ACA prohibition of rescission rules to grapple with. In short, those do not permit a retroactive termination of coverage unless the employer can show fraud or intentional misrepresentation of a material fact--plus the plan has to provide 30 days' advance written notice. There are some exceptions (e.g., late divorce notification, COBRA processing delays), but generally employers will avoid attempts to retro term medical in general because in most cases it's not permitted. Even where there is an argument the recission is permitted, it's a practical challenge to recover paid claims from an employee. State wage withholding law probably won't allow repayment through payroll without the employee's authorization, and without sending the employee to collections (always fun for employee relations) there's not a great way to recover when the employee ignores a demand for repayment. Most often this issue comes up where an employee loses eligibility (e.g., reduction in hours, termination of employment), but the employer mistakenly fails to timely process their termination of active coverage (and offer COBRA). The ACA prohibition of rescission rules are clear in that scenario that a retro term is not permitted. More discussion if you're interested: https://www.newfront.com/blog/terminated-employees-not-terminated-coverage-2

Understood. I still don't fully understand the facts here with how the loss of eligibility occurred per my note above, but I think I get enough of it to weigh in. I always advise that an ineligible individual has to be removed from the plan whenever notice is provided, even if notice is provided late. I do not advise that an employee has to continue paying the employee-share of the premium for an ineligible individual once removed from the plan. I view that as an ultra-purist reading of those §125 irrevocable election rules--and perhaps a violation of applicable state wage withholding law. So I would recommend moving this to the employee-only payment tier once the ineligible dependent is removed. Note that if I understand the scenario correctly, this isn't a HIPAA special enrollment timing window issue--that applied to the dependent's initial enrollment based on adoption or placement for adoption. This is a Section 125 cafeteria plan question you're raising on the employee's failure to timely make permitted election change event request based on a loss of dependent eligibility change in status even (presumably set at a 30-day window in the plan terms).

Interesting. I assume the child was placed for adoption with the employee, and that's why they were initially eligible? And then the employee ultimately did not go forward with the adoption? I haven't heard of this "nonsuit" concept you raise here. If that's correct, I would consider this similar to the issues we see with late notifications of divorce. The employee/dependent have 60 days to notify the plan of the loss of eligibility to preserve the dependent's COBRA rights. Confirm with the carrier, but generally the loss of coverage will be prospective. More details: https://www.newfront.com/blog/event-divorce-terminate-ex-spouse-2 Slide summary: 2025 Newfront COBRA for Employers Guide

Yes, HSAs are an individually-owned account and therefore can be opened outside of the employer relationship. There are plenty of HSA custodians out there willing to take your money, including many of the big name financial houses. That can be done without any employer involvement. As you noted, the employee will have to be enrolled in an HDHP and meet the other HSA eligibility requirements to establish and contribute to an HSA. Here's a detailed overview of the HSA eligibility rules: https://www.newfront.com/blog/the-hsa-eligibility-requirements-part-1 https://www.newfront.com/blog/the-hsa-eligibility-requirements-part-2 Here's a quick slide summary: 2025 Newfront Go All the Way with HSA Guide

Yes, what you're referring to is a spousal incentive HRA (SIHRA). These are a relatively new concept, but in the past couple years they have become an increasingly common employer offering. Lots more details here: https://www.newfront.com/blog/ten-spousal-incentive-hra-compliance-considerations Quick slide summary: 2025 Newfront Fringe Benefits for Employers Guide

Yeah I agree--COBRA would satisfy the A Penalty to offer MEC, but likely not the B Penalty to offer affordable coverage.

I would recommend correcting the tax situation for 2025 retro to 1/1 by recharacterizing the employee-share of the premium as after-tax, imputing income for the employer portion for the DP's coverage, and making any HRA reimbursements for the DP taxable. The employer had no reason to know of the issue for prior years at the time, so I would leave that as is--perhaps noting that it could be considered an individual income tax issue to address with the personal tax adviser. More details: https://www.newfront.com/blog/imputed-income-for-domestic-partner-health-coverage 2025 Newfront Health Benefits for Domestic Partners Guide

Agreed with Leevena. Look-Back Measurement Method Under the look-back measurement method, ongoing employees' status as full-time or part-time is based on the results of the prior-year measurement period. An employee who worked full-time in the prior measurement period will will retain full-time status through the end of the stability period. The stability period generally matches the plan year. So the employer would generally need to continue offering medical through the end of the plan year to avoid potential ACA employer mandate penalties. Monthly Measurement Method Under the monthly measurement method, each month stands for itself. Once the employee drops below 130 hours of service in a given calendar month, they lose full-time status. So the employer could drop the employee from coverage upon the first month the employee works part-time hours. If They're Unsure If they're not aware of which measurement method they are using to determine employees' full-time status, I recommend that they check with their ACA reporting vendor. The ACA reporting vendor will be reporting on employees' full-time status via one of those two methods on the Forms 1094-C and 1095-C. And if they're using the look-back measurement method, the vendor should have a dashboard to monitor the measurement/administrative/stability period determinations of full-time status. COBRA In either case of losing coverage at the end of the stability period or immediately upon working part-time, the loss of coverage will be a COBRA qualifying event. More details: The ACA Look-Back Measurement Method The ACA Monthly Measurement Method Loss of Health Plan Eligibility Caused by Move to Part-Time Work Slide summary: 2025 Newfront ACA Employer Mandate & ACA Reporting Guide

The HSA eligibility rules are the same whether the HDHP enrollment is active coverage or COBRA coverage. As long as you don't enroll in Medicare, you can still be HSA-eligible. Just keep in mind that starting Social Security benefits will automatically enroll you in Part A (and therefore block HSA eligibility). Also keep in mind that you generally would not want to enroll only in COBRA at age 65+ because the plan can treat such coverage as secondary to Medicare even if not enrolled in Medicare, and (as noted above) you do not get an extension on the Medicare 8-month special enrollment period or late enrollment penalty from COBRA coverage. More details: https://www.newfront.com/blog/the-hsa-eligibility-requirements-part-2 The HSA Eligibility Requirements Individuals must satisfy the following four requirements to be HSA-eligible (bolded items covered in this post): Be covered by a qualified high deductible health plan (HDHP); Have no other disqualifying health coverage; Not be enrolled in any part of Medicare; and Not be able to be claimed as a dependent on someone else’s current-year tax return. HSA Eligibility Requirement #3: No Medicare Enrollment Enrollment in any part of Medicare is disqualifying coverage that causes an individual to lose HSA eligibility. This means that an individual who is enrolled in Medicare Part A, Part B, Part C, Part D, or any combination thereof is not eligible to make or receive HSA contributions. Even enrollment in only the (generally premium-free) Medicare Part A hospital coverage blocks HSA eligibility. For more details: Newfront Medicare for Employers Guide How Medicare Affects HSA Eligibility Individuals Who Are Age 65+ May Still Be HSA Eligible Medicare enrollment causes an individual to lose HSA eligibility. However, many employees age 65 and older delay enrollment in Medicare, and therefore may continue to be HSA-eligible. In other words, mere eligibility to enroll in Medicare has no effect on the individual’s HSA eligibility if the individual chooses not to enroll in any part of Medicare. The Medicare Part A Automatic Enrollment Trap: Individuals Receiving Social Security Retirement Benefits Individuals who are receiving Social Security retirement benefits are automatically enrolled in (premium-free) Medicare Part A hospital coverage with no opt-out permitted. Accordingly, any individual receiving Social Security retirement benefits is not HSA eligible by virtue of the automatic Medicare Part A enrollment. The Medicare Part A Retroactive Enrollment Trap: Six Months of Retroactive Coverage For individuals who delay enrolling in Medicare until after age 65, the Medicare Part A enrollment will be effective retroactively up to six months. This six-month retroactive enrollment in Medicare Part A will also block HSA eligibility retroactively for six months. Individuals have two options to address the retroactive Medicare Part A enrollment causing the retroactive loss of HSA eligibility: Plan Ahead: Stop making HSA contributions at least six months before applying for Medicare, and limit HSA contributions during that period to the prorated amount; or Correct Mistake: Work with the HSA custodian to take a corrective distribution of the excess contributions by the due date (including extensions) for filing the individual tax return (generally April 15, without extension). Example 1: Jacob reaches age 65 in August 2024 but does not enroll in Medicare. Jacob signs up for Social Security benefits on October 1, 2025, which automatically enrolls him in Medicare Part A retroactive to April 1, 2025. Result 1: Jacob retroactively loses HSA eligibility as of April 2025—and therefore he can contribute only 3/12 of the HSA statutory limit for 2025 (plus 3/12 of the catch-up contribution). If he already contributed in excess of that limit, Jacob will need to make a corrective distribution of the excess contributions by April 15, 2026 (assuming no extensions) to avoid a 6% excise tax. Slide summary: 2025 Newfront Medicare for Employers Guide

I would consider that an ERISA group health plan benefit. The payment is to medical practitioners for the purpose of accessing medical items and services. Even though the fully insured policy will cover the underlying items/services, this service is a vehicle to access them at an accelerated rate. It's along the lines of a membership fee for one of the concierge services like One Medical. I'm not aware of any definitive guidance that these types of concierge medical service fees are §213(d) medical benefits, but there's an IRS Information Letter that suggests these fees do qualify as medical expenses: https://www.irs.gov/pub/irs-wd/11-0027.pdf. In any case, employers generally treat them as such by excluding the cost from employees' taxable income (pursuant to Internal Revenue Code §105 and §106). One way you could look at it is in light of how the DOL views EAPs. Those are generally always found to be ERISA group health plans because they include services provided by trained medical professionals (in that case, mental health therapists). If it was truly limited to non-medical concierge services it would not be an ERISA plan, but that rarely is the case. As with here, the payments are being made to trained medical providers. Here's some more discussion on topic: https://www.newfront.com/blog/most-eaps-are-group-health-plans-subject-to-cobra Here's some relevant cites: ERISA §3(1): (1) The terms “employee welfare benefit plan” and “welfare plan” mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services, or (B) any benefit described in section 302(c) of the Labor Management Relations Act, 1947 [29 USC §186(c)] (other than pensions on retirement or death, and insurance to provide such pensions). ERISA §607(1): (1) Group health plan. The term “group health plan” means an employee welfare benefit plan providing medical care (as defined in section 213(d) of the Internal Revenue Code of 1986) to participants or beneficiaries directly or through insurance, reimbursement, or otherwise. Such term shall not include any plan substantially all of the coverage under which is for qualified long-term care services (as defined in section 7702B(c) of such Code). Such term shall not include any qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2) of the Internal Revenue Code of 1986). ERISA §733(a): (a) Group health plan.
For purposes of this part— 
(1) In general. The term “group health plan” means an employee welfare benefit plan to the extent that the plan provides medical care (as defined in paragraph (2) and including items and services paid for as medical care) to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise. Such term shall not include any qualified small employer health reimbursement arrangement (as defined in section 9831(d)(2) of the Internal Revenue Code of 1986).
(2) Medical care. The term “medical care” means amounts paid for—
(A) the diagnosis, cure, mitigation, treatment, or prevention of disease, or amounts paid for the purpose of affecting any structure or function of the body,
(B) amounts paid for transportation primarily for and essential to medical care referred to in subparagraph (A), and
(C) amounts paid for insurance covering medical care referred to in subparagraphs (A) and (B) . IRC §213(d)(1)(A): The term “medical care” means amounts paid— (A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, Treas. Reg. §1.213-1(e)(1)(ii): (ii) Amounts paid for operations or treatments affecting any portion of the body, including obstetrical expenses and expenses of therapy or X-ray treatments, are deemed to be for the purpose of affecting any structure or function of the body and are therefore paid for medical care. Amounts expended for illegal operations or treatments are not deductible. Deductions for expenditures for medical care allowable under section 213 will be confined strictly to expenses incurred primarily for the prevention or alleviation of a physical or mental defect or illness. Thus, payments for the following are payments for medical care: hospital services, nursing services (including nurse’s board where paid by the taxpayer), medical, laboratory, surgical, dental and other diagnostic and healing services, X-rays, medicine and drugs (as defined in subparagraph (2) of this paragraph, subject to the 1-percent limitation in paragraph (b) of this section), artificial teeth or limbs, and ambulance hire. However, an expenditure which is merely beneficial to the general health of an individual, such as an expenditure for a vacation, is not an expenditure for medical care.

Yes, anyone can be in the HDHP--even if not HSA-eligible. You just cannot make/receive HSA contributions for the period where you are not HSA-eligible. Yes, perfectly fine to use the FSA for any cost-sharing expenses--even when covered by an HDHP. The Section 125 cafeteria plan election for the health FSA is irrevocable for the duration of the plan year absent a permitted election change event. Here's a quick overview of those events: 2025 Newfront Section 125 Permitted Election Change Event Chart

Well they probably wouldn't have two payrolls if they are leaving at the beginning of the month. But I suppose they might if they had some additional payment stream post-termination. In any case, I think any consistent employer approach here would be fine. Here's some more thoughts on the issue: https://www.newfront.com/blog/final-paycheck-issues-2

Lots of variables here. At a high level it could work if the carriers/stop-loss approve and it is clearly communicated in plan materials addressing eligibility. One potential area of concern (that I think you're hinting at here) is the 125 uniform election rule. If this new class is eligible for the same underlying health plan options as the grandfathered class, there's a good chance that doesn't fly. It would result in HCPs in the grandfathered class receiving a larger employer contribution (premium/HSA) than non-HCPs in the new hire class enrolled in the same plan option. Those are likely "similarly situated" employees for 125 purposes. More details: https://www.newfront.com/blog/designing-health-plans-with-different-strategies The key component of these rules for this purpose is the “uniform election” requirement. That provision requires that employers provide a “uniform election with respect to employer contributions.” A contribution structure that charges more to certain non-HCPs for the same benefit generally does not provide a “uniform election with respect to employer contributions”. This means full-time non-HCP employees eligible for the same plan option as an HCP generally must be offered at least the same employer contribution amount that is available to HCPs for that same plan option. Furthermore, in almost all cases the same Section 125 nondiscrimination rules apply to employer HSA contributions. This means that employers will generally have to make the same employer HSA contribution amount available to full-time non-HCPs enrolled in the HDHP plan option as made available to any HCPs. ... Relevant Cites: Prop. Treas. Reg. §1.125-7(c)(2): (2) Benefit availability and benefit election. A cafeteria plan does not discriminate with respect to contributions and benefits if either qualified benefits and total benefits, or employer contributions allocable to statutory nontaxable benefits and employer contributions allocable to total benefits, do not discriminate in favor of highly compensated participants. A cafeteria plan must satisfy this paragraph (c) with respect to both benefit availability and benefit utilization. Thus, a plan must give each similarly situated participant a uniform opportunity to elect qualified benefits, and the actual election of qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect permitted taxable benefits)…A plan must also give each similarly situated participant a uniform election with respect to employer contributions, and the actual election with respect to employer contributions for qualified benefits through the plan must not be disproportionate by highly compensated participants (while other participants elect to receive employer contributions as permitted taxable benefits). Prop. Treas. Reg. §1.125-7(e)(2): (2) Similarly situated. In determining which participants are similarly situated, reasonable differences in plan benefits may be taken into account (for example, variations in plan benefits offered to employees working in different geographical locations or to employees with family coverage versus employee-only coverage). Slide summary: 2025 Newfront Section 125 Cafeteria Plans Guide

Most employers will just stop employee pre-tax HSA elections for any period of unpaid leave. If the employee wants to contribute, they can always do by making direct contributions to the HSA custodian. When the employee returns in year two, the HSA contribution election (if any) will be for year two. There is also no requirement to continue employer HSA contributions while on leave. Even where it is a protected leave subject to FMLA (or a state equivalent) that requires continuation of the HDHP, no such requirement applies to the HSA because it is not an employer-sponsored plan. More details: https://www.newfront.com/blog/employer-hsa-contributions-during-protected-leave-2 2025 Newfront Health Benefits While on Leave Guide

I don't think there's any right answer here. It's just a matter of finding an approach that works for the employer and applying it consistently. For the employer contribution piece, that's a company policy matter. Employers have full discretion in designing their HSA contribution approach. The employee contribution is subject to the Section 125 cafeteria plan rules, but there is no clear guidance on how to address final paychecks. In any case, I don't consider any preferred approach to be concern given that the irrevocable election rule doesn't apply to employee HSA contribution elections. So again, best practice is really just to apply whatever approach they prefer in a consistent manner. To you last question--Given that HSA eligibility is tied to the first day of each calendar month, I would recommend not including the HSA contribution piece on a paycheck that falls in the following month post-termination. Including the contribution could result in contributions that exceed the proportional limit.

Employers have a lot of discretion in setting the HSA contribution structure, but I've never seen an approach where an employee would get an ER HSA contribution based on being a dependent on an employee spouse's (or parent's) HDHP. That is a bizarre approach. If they allow employee pre-tax contributions to the HSA the much simpler/easier Section 125 nondiscrimination rules apply. Those rules generally require that employers make the same employer HSA contribution amount available to non-HCPs enrolled in the HDHP plan option as made available to any HCPs. More details: https://www.newfront.com/blog/employer-hsa-contributions So in theory this could work if they applied the ER family and single contribution across all future married employees. But I'm not sure why bother/risk it. The husband is going to be an HCP based on officer status, and the spouse is going to be an HCP based on the attribution rules. So at a minimum it just looks bad. They can always contribute outside of payroll, take the deduction, and avoid this issue.

You'd be hard pressed to find any nondiscrim rule that doesn't apply on a §414 controlled group basis. Of course there are some scenarios that permit disaggregation, etc., but the general rule is always that everything is viewed on a controlled group basis. The specifics of each NDT rule vary considerably, so there's no easy way to address the possible issues here on the actual testing.

Those are the comparability rules, which are essentially irrelevant. They apply only where an employer does not allow employee pre-tax HSA contributions through the cafeteria plan. Since basically every employer making contributions also allows employee pre-tax HSA contributions, the comparability rules were just a big waste of Treasury time/paper. Instead, virtually all employers follow the Section 125 nondiscrimination rules. Those are much easier to satisfy. The main limitation is the uniform election rule described above.