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How to Determine Value of Coverage if HRA/Health FSA Reimburses Medical Insurance Premiums

Guest S. Nofziger

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Guest S. Nofziger

(Pardon the multiple postings of this question. I couldn't determine which forum it best fit under.)

Question regarding the exclusion for “Health FSAs” for purposes of the exemption from the annual limit restrictions under the PPACA:

The interim final regulations governing the lifetime and annual limits under the PPACA include an exception for Health FSAs under IRC 106©(2). See Treas. Reg. 54.9815-2711T(a)(2)(ii). IRC 106©(2) defines a Health FSA as a benefit program under which specified medical expenses may be reimbursed and the maximum amount of reimbursement reasonably available to a participant is less than 500% (5x) the value of such coverage. While there is no clear IRS guidance on how to determine the “value” of coverage under an HRA/Health FSA, the “value” of coverage is generally presumed to be equal to the plan’s average per-participant reimbursement amount (i.e., the average claims cost per participant). For example, if an HRA has 10 participants, a maximum reimbursement of $2,000, and $4,500 in claims during the plan year, it is typically considered to be a Health FSA because the maximum reimbursement of $2,000 is less than 5x the presumed $450 per-participant claims cost—i.e., the “value” of coverage.

My question is this:

Does anyone have any guidance on how “value” of coverage may be affected if an HRA will reimburse the purchase of health insurance premiums (not just medical expenses)? Arguably, if health insurance premiums can be reimbursed, the “value” of the HRA coverage would be more than just the plan’s average per-participant reimbursement amount or even the plan’s maximum benefit amount, because participants can purchase insurance that will pay for larger amounts. Does anyone have guidance or thoughts on this?



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