health reimbursement arrangement Archives

IRS Issues Revised Guidance on W-2 Reporting Requirements for Employer-Sponsored Health Plan Coverage

by Amy Gordon, Susan Nash and Ashley McCarthy

The Internal Revenue Service (IRS) has issued revised guidance, Notice 2011-28, regarding the requirement under the Patient Protection and Affordable Care Act (PPACA) that employers report to employees the cost of their employer-sponsored group health plan coverage on Forms W-2. This requirement applies to calendar year 2012 W-2s, which employees will receive from their employer in 2013.

The guidance provided assistance on calculating aggregate reportable cost. Aggregate cost may be calculated in accordance with one of several methods including the “COBRA applicable premium” method, the “premium charged” method (for fully-insured coverage), or a “modified COBRA premium” method.

In addition to medical coverage, employers must include in the cost of employer-sponsored group health plan coverage, coverage under an Employee Assistance Program, wellness program coverage, on-site medical clinic coverage (but only aggregate reportable cost to the extent that the coverage is provided under a group health plan and the employer charges a premium for such coverage to beneficiaries of federal continuation coverage [e.g., COBRA]), Health Flexible Spending Account coverage (FSA), but only where the employer itself contributes to the FSA or otherwise provides flex credits through a Internal Revenue Code Section 125 cafeteria plan, and coverage under a dental plan or vision plan if such plans are not excepted from the Health Insurance Portability and Accountability Act (HIPAA). Employers do not need to include in the cost of employer-sponsored group coverage the cost of coverage under a dental plan or vision plan if such plans are excepted from HIPAA, amounts contributed to an Archer medical savings account (MSA) or a Health Savings Account, amounts of any salary reduction election to an FSA, the cost of coverage under a multiemployer plan, cost of coverage under a Health Reimbursement Arrangement not included in aggregate reportable income, and the cost of coverage provided under a self-insured group health plan that is not subject to federal continuation coverage requirements (i.e., a church plan).

Reminder: Upcoming Amendment Deadline for Cafeteria Plans and HRAs

by Susan Nash and Jacob Mattinson

The Patient Protection and Affordable Care Act (the Act) revised the definition of “medical expenses” in the Internal Revenue Code as it relates to the reimbursement of funds used to purchase over-the-counter (OTC) medicine and drugs. Prior to January 1, 2011, the full cost of OTC medicine and drugs was considered a medical expense eligible for reimbursement from a flexible spending account (FSA) or health reimbursement arrangement (HRA). After January 1, 2011, the Act limits the definition of medical expenses to include only OTC medicine and drugs that are insulin or prescribed by a doctor.

Due to this change, if an FSA or HRA permits reimbursement for medical expenses, the HRA or FSA plan document must be amended, no later than June 30, 2011, to conform to the Act. Employers should, therefore, amend the plan document to provide that expenses for OTC medication and drugs will not be reimbursed without a prescription, with the exception of insulin. Alternatively, the employer may choose to amend the plan document to not provide for reimbursement of OTC medicine or drugs, even when the individual has obtained a prescription.

Please contact your regular McDermott attorney for assistance with any required amendments.