FSA News: Use or Lose and the $2,500 Cap

At this time every year human resource professionals, retailers, and even family and friends remind you to hurry up and spend your healthcare Flexible Spending Account (FSA) dollars before you lose them.

These are important reminders! After all, nobody wants to get caught on the wrong side of the “use it or lose it” rule. Under it, any FSA fund balances at year end are forfeited. That’s right; the entire FSA contribution must be spent by the deadline. Any unspent balance is lost to the employer.

This provision was originally designed to ensure that FSAs wouldn’t be improperly used as tax shelters. Nonetheless, it has been met with some unintended consequences because it has inadvertently encouraged individuals to engage in wasteful healthcare spending, typically at the end of their plan year or grace period.

The Affordable Care Act imposed a new provision banning the use of FSA funds to purchase OTC medicines without a prescription. While intended to correct this wasteful spending, this adjustment merely treats a symptom of the “use it or lose it” provision. Meanwhile, many who criticize the provision feel strongly that a better fix would be to restructure the rule altogether.

Bills have been put forth in both the House and the Senate (H.R. 1004 and S. 1404) that would end “use it or lose it” and replace it with the ability to cash-out and pay taxes on any unused FSA funds at the end of the year. This simple compromise would help ensure that consumers don’t lose their fund balance if annual healthcare expenses are below their expectations, that tax-free dollars won’t be spent wastefully at the end of the year, and that the government will be able to access tax revenue on any funds not spent on qualified medical purchases.

Many see at least one more reason why the “use it or lose it” provision should be scrapped:  its purpose in preventing tax sheltering will no longer be applicable in 2013. At that time the federal healthcare reform law will reduce the maximum workers may put into these accounts. 

Right now most employers cap flex accounts at $5,000, even though there is no required limit. But beginning in January 2013, medical FSA contributions will be capped at $2,500 per year, per employee.[1][2]  This change is designed to raise additional tax revenue in order to help pay for 32 million uninsured Americans. The Congressional Budget Office and Joint Committee on Taxation estimate these changes will allow the government to raise about $19 billion between now and 2019.

In every instance, TASC will be pro-Client and pro-Participant! We will continue to work hard to keep our customers at the forefront of our decision-making processes. With that said, TASC interprets the intent of the statutes as such:  Clients who complete their 2013 enrollment by electing their medical FSA contribution level within the 2012 calendar year would not be subject to the pending FSA cap until the following Plan Year. The new $2,500 mandate will therefore apply to any Plan Year starting February 1, 2013 or later. Of course, the effective date for this provision remains 13 months away, so additional federal guidance may yet be forthcoming. Rest assured that TASC will continue to respond and implement the necessary changes and administrative process updates to comply.

[1] Currently, less than 15 percent of all medical FSA participants fund more than $2,500 annually. In fact, the annual amount funded averages between $1,300-$1,400.

[2] For a married couple in which both spouses work, each spouse may fund $2,500 through his/her respective medical FSA (through the respective employer’s Cafeteria Plan); $5,000 total is allowed per couple. 

TICK-TOCK: “Super” Committee’s Thanksgiving deadline approaches

The Joint Committee for Deficit Reduction (Super Committee) is responsible for putting together a package that reduces the nation’s debt by at least $1.5 trillion over the next 10 years. Seven of the committee’s 12 members must agree to a plan, to be fast-tracked for an up or down vote (simple majority) in both houses of Congress, with no allowances for amendments. The Super Committee must vote on a package by November 23 and report to Congress by December 2. Congress must then vote on it by December 23.

The Super Committee is allowed to meet the $1.5 trillion target through a combination of spending cuts, tax increases, and entitlement reforms. Meanwhile, if the committee fails to come up with a package that meets the mandate—or if the package subsequently fails to pass in Congress—then automatic spending cuts of $1.2 trillion will begin in January 2013 and continue over the next decade. The mandatory across-the-board cuts, also known as “sequestration” in legislative lingo, were built into the original debt limit agreement approved in August.

Consistent with past bipartisan precedent/practice established in the 1980s, the automatic cuts triggered by failure are seen as draconian by many, and split evenly between defense and domestic programs (both entitlement and discretionary). Funding to critical programs like infrastructure, education, public health (i.e. medical research, HIV/AIDS, disease prevention, etc.) and a host of other discretionary programs will be severely cut or sharply reduced...while Medicaid, Social Security, unemployment insurance and civilian/military retirement—which are exempt from the trigger—would be left untouched. Likewise, any cuts to Medicare would be capped and limited, and tax subsidies are exempt from the automatic cuts. That means oil and gas subsidies—along with subsidies for homeowners, retirement savings, business start-ups, etc.—will remain in place.

The automatic cuts are often discussed in Washington as if they’re certain, as if Congress cannot prevent their inevitability. In reality, federal budget deals have seldom, if ever, gone the distance intact… Most often they have been changed, waived, ignored, or even abandoned altogether. Put more simply: the across-the-board spending cuts may never go into effect.

The committee’s task, while daunting, is made even more difficult by a divided Congress and ongoing battles about federal healthcare reform, along with a presidential campaign season that is already in full swing. Meanwhile, Senate Democrats may well be adding to the complexity of the issue. Indeed, the Joint Committee for Deficit Reduction itself was the brainchild of Senate Majority Leader Harry Reid (D-NV), who therefore has a vested interest in the Super Committee’s success, an interest that may not jive with that of a diverse Democratic Party. Some rank and file Democrats—particularly in the House—are beginning to posit that a Super Committee failure would be preferable to a “bad” deal crafted by the panel.

The Constitution is not on the side of those pushing for automatic cuts.  Under Article I, Section 7, each Congress has an equal right to legislate. So the 112th Congress can pass a bill setting the federal deficit for this year and next year (2011-12), but that’s about it. Anything that goes beyond the first week of January 2013, when the 113th Congress will be sworn in, is subject to change by that Congress, and every subsequent Congress.

OVERALL IMPACT ON TASC PROVIDERS (AND CUSTOMERS): LITTLE TO NONE!  At present it appears that we will not be affected by the auto-cuts, although the consequences of the Super Committee’s work are as yet unknown. TASC’s Governmental Affairs team will continue to monitor the proceedings and keep you informed of any changes.


The Supreme Court’s 2011-12 Term is Now in Session

Is PPACA on the docket?

In a move that many will read as a sign of confidence, the Obama administration chose not to ask a federal appeals court for further review of a ruling striking down the centerpiece of the president’s sweeping healthcare overhaul—the mandate that individuals must purchase health insurance if they have none. The decision makes it more likely that the U.S. Supreme Court will hear the case during the court’s current term, and will render its verdict on the law in the midst of the 2012 presidential campaign.

In an August ruling, a divided three-judge panel of the Atlanta-based 11th Circuit Court of Appeals concluded that Congress overstepped its authority when it passed the individual mandate provision that requires individuals to purchase health insurance. The suit at the center of the controversy–Florida v. HHS–was brought forth by 26 states and the National Federation of Independent Businesses.

The Supreme Court has great discretion regarding when and how to accept a case, so the real question now is timing, which has political as well as legal ramifications. Under the court’s normal procedures, it must accept a case by January in order to render a decision by the traditional conclusion of the term at the end of June. Meanwhile, the key ingredients for making a case worthy of the court’s prompt attention appear to be present.

Even if the justices hear the healthcare reform case this term, it doesn’t necessarily follow that they will rule on whether it’s constitutional or not. The high court will have a full menu of options at their disposal when resolving this case; a majority could uphold the law, strike down the mandate, void other parts of the measure, and so on. 

As an alternative, the justices could adopt the approach recently taken by one of the appeals courts, and may conclude that the law shouldn’t be reviewed until the first penalties are assessed. This “out,” called the Anti-Injunction Act (AIA), would require Americans to pay a tax before allowed to challenge the mandate in court. Such a tax could be a major factor in the pending legal challenge surrounding the individual mandate, since people without healthcare coverage would have to pay a penalty. Either way, the mandate doesn’t go into effect until 2014; if the court determines that the AIA applies, no final verdict on the issue would be expected until approximately 2017.

Ultimately, the provision’s fate before the nine-member court (which is closely divided between a conservative majority and four liberals) could come down to two Republican appointees–Chief Justice John Roberts and Justice Anthony Kennedy.

NOTE:  Shortly after the Dept. of Justice asked the Supreme Court to take up the healthcare reform lawsuit brought by 26 states (above), Virginia Attorney General Ken Cuccinelli asked the court to reverse a previous ruling, to decide whether his state can challenge the federal healthcare reform law as well. Virginia’s suit is based on a state law that allows residents to forego health insurance. A handful of other states have passed or are considering passing similar legislation.

HRAs “Waive” Goodbye to Annual Limits

This post details recent Dept. of Health & Human Services (HHS) guidance on the annual limit requirement/waiver process and its effect on Health Reimbursement Arrangements (HRAs).


One provision of the Patient Protection and Affordable Care Act (PPACA), which went into effect back in September of 2010, prohibits health plans from imposing annual “caps” on the reimbursement of essential health benefits.[1]  The interim final regulation provides that for plan years beginning before 2014, a group health plan may impose a restricted annual limit on essential health benefits, but only if the annual limit is at least one of the following:

  • $750,000 annual limit for plan years beginning on/after Sept. 2010 but before Sept. 1, 2011;
  • $1.25M annual limit for plan years beginning on/after Sept. 2011 but before Sept. 1, 2012; and
  • $2M annual limit for plan years beginning on/after Sept. 23, 2012 but before Jan. 1, 2014.

Effect on HRAs

In the same interim final regulation, certain categories of HRAs were declared automatically exempt from the annual limit requirement.

  • Integrated HRAs– those that are “integrated” with, or tied to, a high deductible health plan or other health insurance coverage. (Status = EXEMPT)
  • Retiree HRAs– those that reimburse only those expenses incurred after the participant’s employment has ended.  (Status = EXEMPT)
  • Limited Scope HRAs– those that reimburse dental and/or vision expenses only.  (Status = EXEMPT)
  • Stand-Alone HRAs – per HHS guidance issued in late August 2011, HRAs in existence prior to Sept. 23, 2010 are exempt from the requirement to individually apply for a waiver or extension (see below) for plan years beginning before 2014.

Waiver Applications

Established health plans with annual caps were permitted to apply for a waiver from the provision. If granted, the waiver would allow a plan’s current cap to remain in effect until the plan removes the limit or until 2014, whichever comes first. At last check, 491 HRA waivers had been granted (out of a total of 1,472 waivers requested). 

In anticipation that they would be inundated with waiver requests, HHS set a firm deadline of September 22nd… This means applications are no longer being considered. 

What does this mean for HRAs established since Sept. 23, 2010?

While it appears that they are not covered by this new HRA exemption, these plans may or may not have been eligible to apply for an annual limit waiver under the HHS program that expired September 22. In sum, this effectively means that these restrictions will apply to future new HRAs unless said HRAs are otherwise exempt from the PPACA annual limit restrictions (e.g., exempted because the HRA is integrated with other health coverage, provides “retiree-only” coverage, etc.).

If employers are forced to raise their annual limits to the recommended amounts, they may be compelled to drop or dramatically reduce the benefits they provide. The employer benefits provided by TASC (in the HRA) go beyond any health insurance offerings, and we hold firm in our belief that these plans fit within the spirit and intent of the “Integrated HRA” exception/exemption. Recent healthcare regulations mandated by PPACA already pose significant challenges to small business owners, including the management of medical reimbursement plans, adherence to new regulations and strict deadlines, and so on.  Meanwhile, this requirement may single-handedly reduce access to these benefits and negatively affect the individuals covered. 

[1] Essential health benefits that are subject to the restriction on annual limits include the following: ambulatory, emergency, hospitalization, laboratory, maternity/newborn care, mental health/substance abuse, pediatric, preventative/wellness services, and rehabilitative care.


Administration putting the long-term care program on ice.

According to various sources, the Obama administration is putting a financially troubled part of the 2010 healthcare reform law on hold, leaving in doubt whether the benefit for disabled Americans will ever be implemented.

Known as CLASS, the Community Living Assistance Services and Supports program would be a form of long-term care insurance. Specifically, beneficiaries who pay monthly premiums for at least five years would be eligible for daily payments to help with their daily living activities if they become disabled later in life. Beneficiaries could use the money for services to help them stay at home, or to help with nursing home bills.

Dogged by controversy from the very beginning of the healthcare reform debate, CLASS has since languished in bureaucratic limbo…facing persistent criticism from Congressional Republicans who questioned its financial viability and quickly targeted it for repeal.

Technically, as long as CLASS remains on the books, it counts as reducing the deficit within the ten-year estimating window used for federal budget purposes. One would think that quirk alone may make it tempting to maintain at least a shell of a program, but recent Dept. of Health & Human Services (HHS) comments appear to highlight the agency’s ambivalence toward the program.

In another interesting development, the White House has apparently requested that Senate Democrats zero out any CLASS funding for the upcoming fiscal year. That is in sharp contrast to the administration’s initial position of $120 million.

Although Congressional champions of CLASS—like Sen. Barbara Mikulski (D-MD) and Rep. Frank Pallone (D-NJ)—have vowed that they’ll do all they can to keep it alive, it may simply be a case of too little, too late.

Exchange Roadmap Unveiled

The Department of Health and Human Services (HHS) recently rolled out the initial regulations regarding the establishment of State Health Insurance Exchanges1 under the Patient Protection & Affordable Care Act (PPACA). At first glance, these mandates – which are being issued in several phases – appear to grant states a great deal of flexibility…BUT, they also raise a host of complex questions that probably won’t be answered until sometime next year. 

In general, the rules establish the requirements that an Exchange must satisfy in order to be approved, the minimum requirements that health insurers must satisfy in order to participate in an Exchange, and the eligibility small employers must meet if they wish to participate in the Small Business Health Options Program (SHOP). Notable guidance includes the following:

Approval DeadlineJanuary 1, 2013 is the deadline for an Exchange to be approved by HHS as demonstrating “operational readiness.” If a state elects not to establish an Exchange or has not been approved by that date, HHS will intervene and establish the Exchange in that particular state. Meanwhile, HHS may grant a “conditional” certification to a state that is unable to meet the initial / original deadline, but making progress toward being fully operational by 2014.

Structure & Governing Board – States may opt to establish the Exchange as part of an existing state agency/office, as an independent public agency or as a non-profit entity. The governing board should favor individuals who support the interests of consumers, and cannot have a majority of voting representatives with a “conflict of interest”…including health insurance issuers, agents, brokers, etc.

Regional/Subsidiary Exchanges – States can participate in a Regional Exchange spanning two or more states (regardless of whether they are contiguous), as long as HHS approval is granted. Additionally, a state may instead establish one or more Subsidiary Exchanges, which would serve distinct geographic areas. 

General Functions – At a minimum, an Exchange must perform certain requirements, including issuing exemption certificates; performing eligibility determinations; establishing an appeals process; and providing both oversight and financial integrity functions. The proposal also provides instructions regarding the role of “Navigators.”2

SHOP Exchange – Each state would also be required to establish insurance options for qualifying small businesses through a SHOP, although participation by small employers is voluntary. A SHOP is intended to ensure that small employers have the same purchasing power as large employers, and to allow them to offer employees a choice of plans. Certain small employers participating in a SHOP will be eligible to receive a small business tax credit for contributions they make toward employees’ premiums.

Needless to say, the proposed regulations cover a lot of ground – AND A LOT OF PAGES! TASC is now in the process of analyzing a second set of instructions that lay out how these new marketplaces will deal with enrollment, provide subsidies for low to middle income American and interact with the Medicaid program. More to come…    

1 Exchanges are state-based competitive health insurance marketplaces through which individuals and small businesses (with fewer than 100 employees) can purchase private health insurance.   

2 Navigators: the public / private entities expected to assist individuals / small businesses find coverage for insurance, conduct outreach and provide education about the Exchanges. They must have knowledge of the market, but cannot receive compensation from an insurer for enrolling eligible candidates in a Qualified Health Plan (QHP).

Strike Two – 11th Circuit PPACA Ruling: Unconstitutional

The recent Court of Appeals ruling on the Patient Protection & Affordable Care Act (PPACA) all but ensures that the U.S. Supreme Court will be the ultimate arbiter of the law’s constitutionality.

A three judge panel of the court, based in Atlanta, found that Congress exceeded its authority when it mandated that all Americans purchase individual health insurance starting in 2014 or face a penalty… The court’s rejection affirmed a portion of District Judge Roger Vinson’s decision in the lawsuit brought by 26 governors and attorneys general (Florida v. HHS). The court did, however, find the individual mandate to be severable from the rest of the law – declaring that the remaining provisions are “legally operative.” Vinson had originally concluded that the mandate was integral to the rest of the legislation, and therefore had invalidated the entire act.

The 2-1 opinion was written by Judges Joel Dubina (a George H.W. Bush appointee) and Frank Hull (a Clinton appointee). Not only does it mark the first time that a judge appointed by a Democrat has voted to strike down the mandate, but last week’s decision is in direct conflict with a Cincinnati appellate court, which upheld the controversial measure back in June. Meanwhile, a third federal appeals panel – the 4th Circuit Court of Appeals (Richmond, VA) – has yet to rule on a separate challenge brought by the state of Virginia.

The federal government now has 90 days to ask for a full 11th Circuit review of the three-judge ruling or it could choose a direct appeal to the high court. Many see it likely that the Supreme Court will take up the healthcare law during its upcoming fall term that begins in October, with a ruling possible by the summer of 2012 (pre-presidential election).

This is what we’ve all been waiting for!

New Guidelines for Women’s Preventive Healthcare Services

Within the next 18 months, paying for things like birth control, yearly check-ups, breastfeeding supplies, etc. will be a thing of the past…as those expenses will totally disappear from most American women’s budgets.

Earlier this month, the Secretary of Health & Human Services (HHS) announced new guidelines for coverage of women’s preventive healthcare services. Most notably, the mandate—which represents a landmark decision in a decades-long debate on women’s health issues—means that U.S. health insurance companies must now fully cover women’s birth control. 

The requirement applies to all forms of birth control approved by the FDA. That includes the pill, intrauterine devices, the so-called “morning-after” pill, and newer forms of long-acting implantable hormonal contraceptives.

NOTE: In a nod to conservative groups, the agency also released an amendment that would allow religious employers/institutions the choice to opt out of covering contraceptive services. 

The new guidelines also require 100% coverage of these additional preventive health categories:

  • Annual preventive/wellness visits (including prenatal care);
  • Gestational diabetes screening;
  • Human papillomavirus (HPV) testing;
  • Counseling/Screening for human immunodeficiency virus (HIV);
  • Counseling/Screening for sexually transmitted disease (STD) infections;
  • Breastfeeding support/supplies; and
  • Domestic violence counseling.

These new services join a growing list already embedded in the Affordable Care Act, including colonoscopies, mammograms, pediatric services, and vaccinations.

The guidelines, a by-product of last year’s healthcare overhaul, require non-grandfathered health plans to do away with co-payments, co-insurance, and deductibles on coverage of the services listed above beginning on August 1, 2012 (or January 1, 2013 for calendar year plans). Plans that are considered “grandfathered” under the law (those that were in place prior to March 23, 2010) are exempt, and will not be affected.

See http://www.hrsa.gov/womensguidelines/ for more information.