Reimbursement of Medical Expenses Payable to Adult Dependent Children

A client maintains, as part of its health plan, a healthy lifestyles program. This program provides reimbursements to participants and their dependents for vitamins, non-medical nutritional counseling, gym memberships, massage therapy and weight management, among others.  The program's administrative services provider was recently changed and it has been issuing reimbursements of expenses incurred by adult dependent children directly to the children rather than the participant. When questioned about their rationale for this practice, the provider claims that Affordable Care Act regulations require that the reimbursements to such individuals must be made payable to adult dependents instead of to the member participant. 

My understanding is that the ACA mandate merely requires a group health plan to extend coverage to a child until s/he attains age 26. There is no requirement stated in the provisions of the Code, ERISA or the PHSA that was amended by ACA (or their underlying regulations) requiring that such reimbursements be paid directly to the adult dependent child. As an analogy, for a married couple, if the spouse of a participant incurs medical expenses, the reimbursements are paid to the participant and not to the spouse. Do you agree with my understanding?

Thanks in advance.

What you're describing sounds like an LSA, which is a non-medical arrangement.  By definition, an LSA cannot include §213(d) medical expenses--otherwise it would become a group health plan.  The ACA does not apply to an arrangement like that.  It would apply to group health plans like an HRA. 

• More details: https://www.newfront.com/blog/lifestyle-spending-account-compliance-considerations

Even if we were talking about an HRA, there is nothing in the ACA Age 26 mandate that requires direct reimbursement to the adult child.  When an adult child is covered by a major medical plan, the reimbursements go directly to the provider.  When an employee submits a child's medical expense through a health FSA, the reimbursement goes directly to the employee.  Same deal with HRAs. 

• More details: https://www.newfront.com/blog/aca-age-26-mandate-2

So really the response is nonsensical on many levels.

Note also that, regardless of to whom the reimbursements are made, most if not all of the reimbursements will likely constitute taxable income to the participant, if as appears likely, the LSA is provided in connection with an employer-employee relationship.