Employee-paid Vision Plan & HCFSA

[Breanna Bonollo]

A university is adding a new employee-paid vision plan to its benefits package. Currently, the university allows employees to enroll in a health care flexible spending account if they enroll in health, dental, or both to help pay for qualified medical expenses. If an employee chooses to enroll in the new employee-paid vision plan only (not enroll in health, dental, or both), are they eligible to enroll in the health care flexible spending account? The health care flexible spending account that is currently offered by the university is not the HCFSA limited purpose. Furthermore, is the university required to link the new employee-paid vision plan with the HCFSA, or is this optional?

[Brian Gilmore]

I think what's going on here is this plan has taken a nugget of something important and taken it a step too far.

Health FSAs need to be an excepted benefit to avoid violating the ACA market reforms.  One component of excepted benefit status is the "footprint rule."  In short, this says that the health FSA eligibility footprint can't be broader than the major medical eligibility footprint.  Put another way, every employee eligible for the health FSA must also be eligible for the major medical.

Nothing about this rule requires actual enrollment in the major medical.  

As for the vision, that's almost certainly an excepted benefit itself.  That makes the vision plan irrelevant for purposes of this health FSA excepted benefit analysis.

 

Here's some more details:

https://www.newfront.com/blog/aca-and-hipaa-excepted-benefits

Common Excepted Benefit #2: Vision Plan

Fully Insured Vision Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the eye; and
• Separate Policy: Vision benefits are provided under a separate vision policy, certificate, or contract of insurance.

Note: Self-insured vision plans cannot meet this test.

Self-Insured Vision Plan Excepted Benefit Status:

• Limited Scope: Substantially all benefits are for treatment of the eye; and
• Not Integral to Group Health Plan: At least one of the following two conditions is satisfied:

1. Participants May Decline Coverage: Employees must be permitted to decline (i.e., waive, opt-out from) the vision plan, regardless of whether there is an employee contribution required for the coverage; or
2. Separate Claims Administration Contract: The employer has entered into a contract with a TPA to administer the vision plan benefit claims that is separate from any contract with a TPA for claims administration of any other group health plan benefits.

Note: Although not common, fully insured vision plans also may meet this “not integral” approach for excepted benefit status if they do not satisfy the “separate policy” approach.

Common Excepted Benefit #3: Health FSA

Health FSAs must qualify as an excepted benefit to avoid violating the ACA market reform provisions.

The general requirements for a health FSA to be considered an excepted benefit are:

• The Footprint Rule: All employees eligible for the health FSA must also be eligible for the major medical plan; and
• The $500 Rule: Employer nonelective contributions to the health FSA cannot exceed $500.

Under the footprint rule, all employees eligible for the health FSA must also be eligible for (regardless of enrollment in) the major medical plan. In other words, the health FSA eligibility “footprint” cannot be broader than the major medical plan’s eligibility “footprint.”  For more details, see our prior post: The Health FSA Eligibility Footprint Rule.

The $500 rule typically is not an issue because most employers do not make employer contributions to the health FSA. Those employers that do contribute to the health FSA generally will have to limit that employer health FSA contribution to no more than $500 to preserve the plan’s excepted benefit status.

Employers wishing to contribute in excess of $500 to the health FSA can generally do so only if the structure the employer contribution as a matching contribution. This is because the health FSA “maximum benefit” rule technically prohibits employers from contributing any amount that exceeds two times the employee’s salary reduction election (or, if greater, $500 plus the employee’s salary reduction election).

 

Here's the relevant cites:

29 CFR §2590.732(c)(3)(v):

(c) Excepted benefits.

… (v) Health flexible spending arrangements. Benefits provided under a health flexible spending arrangement (as defined in section 106(c)(2)) are excepted for a class of participants only if they satisfy the following two requirements—

(A) Other group health plan coverage, not limited to excepted benefits, is made available for the year to the class of participants by reason of their employment; and

(B) The arrangement is structured so that the maximum benefit payable to any participant in the class for a year cannot exceed two times the participant’s salary reduction election under the arrangement for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). For this purpose, any amount that an employee can elect to receive as taxable income but elects to apply to the health flexible spending arrangement is considered a salary reduction election (regardless of whether the amount is characterized as salary or as a credit under the arrangement).

DOL Technical Release 2013-3:

https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/technical-releases/13-03

2. Application of the Market Reforms to Certain Health FSAs

Question 7: How do the market reforms apply to a health FSA that does not qualify as excepted benefits?

Answer 7: The market reforms do not apply to a group health plan in relation to its provision of benefits that are excepted benefits. Health FSAs are group health plans but will be considered to provide only excepted benefits if the employer also makes available group health plan coverage that is not limited to excepted benefits and the health FSA is structured so that the maximum benefit payable to any participant cannot exceed two times the participant’s salary reduction election for the health FSA for the year (or, if greater, cannot exceed $500 plus the amount of the participant’s salary reduction election). See 26 C.F.R. §54.9831-1(c)(3)(v), 29 C.F.R. §2590.732(c)(3)(v), and 45 C.F.R. § 146.145(c)(3)(v). Therefore, a health FSA that is considered to provide only excepted benefits is not subject to the market reforms.

If an employer provides a health FSA that does not qualify as excepted benefits, the health FSA generally is subject to the market reforms, including the preventive services requirements. Because a health FSA that is not excepted benefits is not integrated with a group health plan, it will fail to meet the preventive services requirements.

[Breanna Bonollo]

Thank you for your quick response! I have one clarifying question - you mentioned that the plan has taken a nugget of something important and taken a step too far by allowing employees to enroll in a health care FSA if they enroll in health, dental, or both. Does this mean the plan is currently out of compliance, and the plan must allow employees who are eligible for the major medical plan to enroll in a health care FSA regardless of actual enrollment in the major medical?

[Brian Gilmore]

No it's not out of compliance, it's just an unnecessarily restrictive plan design.  I don't think I've ever seen a plan condition health FSA enrollment on simultaneous enrollment in the main health plan.  There's no reason I'm aware of to impose that eligibility restriction.