Tag: HRAs

Client Alert: FSAs, HRAs, and HSAs Can Reimburse Over-the-Counter Medications

One of the many changes brought forth under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) includes allowing pre-tax reimbursement of over-the-counter (“OTC”) medications effective January 1, 2020.

Specifically, the CARES Act amended Internal Revenue Code (the “Code”) sections 223(d) and 106(f) to remove the restriction that reimbursable medications are limited to prescribed drugs and insulin. Additionally, the CARES Act provides that expenses incurred for menstrual care products (as defined in Code section 223(d)(2)(D)) shall be treated as incurred for medical care. Affected reimbursement accounts include health flexible spending accounts (“health FSAs”), health savings accounts (“HSAs”), and health reimbursement accounts (“HRAs”).

This marks another change in course as to how to handle OTC medications. While OTC drugs were previously allowed under the Code, beginning January 1, 2011, the Affordable Care Act limited reimbursable medications to prescriptions and insulin. The CARES Act once again changes that, and while many of the CARES Act provisions include sunset dates, there is no expiration date for OTC reimbursements. With respect to HSAs, this change is effective for amounts paid after December 31, 2019. For health FSAs and HRAs, it is effective for expenses incurred after December 31, 2019.

Most health FSA and HRA plan documents specifically restrict reimbursement to prescription drugs and medications, including insulin. Therefore, if an employer chooses to allow reimbursements of OTC and menstrual care products from health FSAs and HRAs, plan amendments will most likely be required. HSAs are generally not employer sponsored products and, as such, would require no amendments.

While these are permissive changes, employers wanting to share some positive news to employees may want to allow them. Employee communication, as always, is of paramount importance, especially summaries of material modifications for ERISA plans.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions. 

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Client Alert: PCORI Payment Due July 31st

Patient-Centered Outcomes Research Institute (PCORI) Fee/Comparative Effectiveness Fee

Reminder: Plan Sponsors of Applicable Self-Funded Health Plans Must Make PCORI Fee Payment By July 31, 2019.

Please let this serve as a reminder that the PCORI fee is due by July 31st and must be reported on Form 720. The fee is used to partially fund the Patient-Centered Outcomes Research Institute which was implemented as part of the Patient Protection and Affordable Care Act.

Instructions are found here (see Part II): http://www.irs.gov/pub/irs-pdf/i720.pdf

The Form 720 itself is found here (see Part II): http://www.irs.gov/pub/irs-pdf/f720.pdf

Form 720, as well as the attached Form 720-V to submit payment, must be used to report and pay the requisite PCORI fee to the IRS. While Form 720 is used for other purposes to report excise taxes on a quarterly basis, for purposes of this PCORI fee, it is only used annually and is due by July 31st of each relevant year.

As previously advised, plan sponsors of applicable self-funded health plans are liable for this fee imposed by Code section 4376. Insurers of specified health insurance policies are also responsible for this fee.

  • For plan years ending on or after October 1, 2016 and before October 1, 2017, the fee is $2.26 per covered life.
  • For plan years ending on or after October 1, 2017 and before October 1, 2018, the fee is $2.39 per covered life.
  • For plan years ending on or after October 1, 2018 and before October 1, 2019, the fee is $2.45 per covered life.

See IRS Notice 2018-85. The fee is due no later than July 31 of the year following the last day of the plan year and concludes with plan years ending on or after October 1, 2018 and before October 1, 2019. For calendar year plans, the fee runs from 2012 through 2018 plan years. This means that 2018 will be the last year that the PCORI fee is assessed for a calendar year plan (and again, will be due July 31, 2019).

There are specific calculation methods used to configure the number of covered lives and special rules may apply depending on the type of plan being reported. While generally all covered lives are counted, that is not the case for all plans. For example, HRAs and health FSAs that are not excepted from reporting only must count the covered participants and not the spouses and dependents. The Form 720 instructions do not outline all of these rules.

Elizabeth H. Latchana, Attorney Fraser TrebilcockElizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.