After more than a year of debate, Congress has completed work on a comprehensive health care reform package.  The "Patient Protection and Affordable Care Act" (PPACA) (H.R. 3590) became law on March 23, 2010. On March 25, 2010, both the Senate and House approved the "Health Care and Education Reconciliation Act of 2010" (H.R. 4872), which makes substantial changes to PPACA.

 

The newly enacted legislation affects pre-tax benefit programs on several fronts, and we have included information below on how various programs are anticipated to be impacted, based upon the information that is currently available.  As IRS and/or DOL regulations are developed that further expound upon the recently enacted legislation, we will provide further clarifications. 

 

Please be aware that we are interpreting the newly signed laws to the best of our abilities, based upon our interpretation of the law, as well as current industry consensus, but it is entirely possible that the clarifying regulations will lead us to modify our explanation of how the new laws will be put into practice.

 

Reimbursement for Medical Expenses Must be for Prescribed Drugs or Insulin

The laws governing FSA/HRA/HSA reimbursements for over-the-counter (OTC) medicine are changing.  Effective January 1, 2011, OTC medicines will only be considered a qualified medical expense if the individual has a prescription for the medicine.  Participants will be able to submit claims for eligible OTC medicines purchased without a prescription through December 31, 2010 through the end of the claims run out periods for any plans that began prior to December 31, 2010. 

 

We anticipate that only those items that represent drugs, medicines and biologicals will be precluded from tax-free reimbursement without a prescription, which means we are anticipating that equipment, supplies, and diagnostic devices such as bandages, hearing aid batteries, blood sugar test kits, etc. will remain eligible for reimbursement without a prescription.

 

The items anticipated to no longer be eligible for a tax break without a prescription are those that fall into the following categories:

 

 

 

Limit on Health Care Flexible Spending Account Contributions

Effective January 1, 2013, the annual contributions to health care FSAs will be limited to $2,500.  Starting January 1, 2014, this limitation will be indexed annually based upon the general inflation rate in multiples of $50.  We are anticipating that the IRS will provide guidance regarding how plans that do not renew on a calendar year cycle are to handle this limitation.  As more information becomes available, we will provide further information.

 

Increased Penalty for Use of HSA Funds for Non-Qualified Medical Expenses

Effective January 1, 2011, the additional tax on HSA withdrawals prior to age 65 that are not used for qualified medical expenses will be doubled to 20%, from 10%.