Eliminate group health plan “footprint” rule, allow standalone FSAs, ECFC urges HHS

Stressing the importance of consumer-directed health arrangements, the Employer Council on Flexible Compensation (ECFC) urges the Department of Health and Human Services (HHS) to review the excepted benefits regulations and eliminate the group health plan “footprint” requirement so that health flexible spending arrangements (FSA) are allowable for employees even if there is no group health plan coverage offered to them through an employer.
The recommendation was included in a recent letter to HHS in response to a Request for Information (RFI), issued on June 12, 2017, that sought recommendations and input on HHS’ aim to reduce regulatory burdens and improve health insurance options under Title I of the Patient Protection and Affordable Care Act (ACA).

Standalone FSA subject to ACA.

The ECFC letter explains that benefits provided under a health FSA are only excepted for a class of participants if other group health coverage is made available to that class of participants. Agency guidance provides that the ACA’s market reform rules do not apply to these plans. If an employer offers a stand-alone health FSA plan that is not considered an excepted benefit, the employer will be subject to the market reforms or, if not compliant, an excise tax. Thus, employers that do not offer group health plan coverage will not give employees the ability to finance their health care expenses on a pre-tax basis though a stand-alone health FSA. “This deprives employees of an important tax advantaged means of paying for health expenses,” the letter states.

Change rule to benefit employees.

To rectify this problem, the ECFC recommends that HHS review the excepted benefit regulations and eliminate this group health plan requirement. The change would enable employees who work for employers who do not offer group health plan coverage to receive the benefits of a health FSA. The ECFC notes the tax advantages may be particularly important to these employees because they do not have access to the tax benefits of an employer-sponsored major medical plan.
The letter also notes that “the landscape has changed substantially since the pre-ACA period when the FSA exception was first adopted. Unlike when the FSA regulatory exception was first added, there is no longer a concern that employers would try to mask substantive group health coverage as an FSA excepted benefit”.
Due to the ACA’s cap on salary reductions for health FSAs, FSAs cannot provide substantial benefits to substitute for group health coverage. “Since passage of the ACA, it has become abundantly clear that Health FSAs cannot serve as a replacement for (or be confused with) group health coverage,” the letter states.

SOURCE: ecfc.org
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