Health Care Reform Update

Clarifying FSA Changes

The Treasury Department and IRS recently issued Notice 2012-40, limiting health FSA salary reduction contributions to $2,500 effective January 1, 2013. For plan years beginning after December 31, 2013, the limit will be indexed based on cost-of-living adjustments.

This means that a health FSA plan run on a non-calendar year basis will not be required to comply with the $2,500 limit until the first plan year beginning on or after January 1, 2013. For FSA plans that provide a grace period of up to 2-1/2 months after the end of the plan year, unused salary reduction contributions attributable to plan years beginning in 2012 will not count against the $2,500 limit for the 2013 plan year.

It is important to note that the $2,500 limit applies only to salary reduction contributions under a health FSA and not to employer contributions. The limit does not apply to amounts available for reimbursement under other types of FSAs, such as dependent care assistance or adoption care assistance plans, health savings accounts or health reimbursement arrangements. While the IRS did request comments on how the Use-It-or-Lose-It rule may be modified to interact with the $2,500 limit, the rule still requires that unused amounts in health FSAs be forfeited at the end of the plan year.

California Tables Small Group Legislation

The Self Insurance Institute of America reported at the end of August that the California insurance commissioner and key legislators decided to move SB1431 to inactive status and revisit the legislation in 2013. The legislation was intended to impose minimums on reinsurance attachment points, thereby making it impossible for employer groups of 50 or less to partially self-fund.

To view other articles from the SIP Fall Newsletter, please click here.

In cooperation with NAEBA

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