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Impact of Health Care Reform on FSAs, HSAs, and HRAs

Health Care Reform could have a substantial impact on how you and your employees use FSAs, HRAs, and HSAs.

Young Adult Coverage and FSAs

In addition to the rules that require employers to continue health insurance coverage for adult dependents, participants can also submit FSA claims for expenses incurred by their adult dependents. These are defined as dependents who will not reach age 27, regardless of tax-dependent status, by the end of the calendar year.

Over-the-Counter Items

Over-the-counter medicines or drugs other than insulin are no longer eligible for reimbursement under a HRA or medical FSA, unless prescribed by a medical practitioner.

Increased Penalties on Certain HSAs

There is now a 20 percent penalty for using HSA funds for purposes other than paying for qualified medical expenses.

Employee Contribution Limit on Health FSAs

Employee contributions to medical FSAs will now be limited to $2,500 for a taxable year or the company maximum. This maximum will be adjusted annually for inflation.

Please note:

  • The $2,500 limit does not apply for plan years that began before 2013.
  • The term "taxable year" in section 125 refers to the cafeteria plan year, as this is the period for which salary reduction elections are made.
  • Plans may adopt the $2,500 limit at any time through the end of 2014.
  • Unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.
  • Relief is provided for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake that is corrected by the employer.
  • If Paychex administers your FSA plan, we will notify participant employees of this information well before the effective dates.