The Department of Vermont Health Access has released a new fact sheet to provide employers with Internal Revenue Service (IRS) guidance on the interaction of certain tax-favored accounts, such as health savings accounts (HSA), with Vermont Health Connect plans. The Tax-Favored Accounts Fact Sheet is available at www.vermonthealthconnect.gov.
Vermonters whose employers do not offer health insurance may qualify for financial help to reduce the costs on an individually-purchased health plan. Earlier this month, the IRS issued new guidance clarifying that an individual’s eligibility for financial help would not be negatively impacted by an employer’s decision to contribute to an HSA.
An HSA allows individuals and their qualified dependents to use pre-tax dollars to pay for their out-of-pocket medical costs. HSAs may not be used to pay for premiums and can only be paired with high-deductible health plans.
Vermont Health Connect offers high-deductible health plans at the Bronze and Silver levels. High-deductible health plans have lower monthly premiums and higher out-of-pocket costs. The IRS guidance means that employers that do not have health insurance may choose to lower their employee’s annual health costs through tax-favored contributions to an HSA, without affecting their employees’ ability to receive financial help to lower their medical costs.
The guidance applies to HSAs only, not to other vehicles used for health costs such as Health Reimbursement Accounts, Flexible Spending Accounts, or Section 125 plans.
There is a maximum annual contribution amount for HSAs. In 2014, the maximum annual contribution is $3,300 for an individual and $6,550 for a family.
Tax-favored vehicles, such as HSAs, are regulated by the IRS. Vermonters are advised to review the IRS guidance directly (http://www.irs.gov/pub/irs-drop/n-13-54.pdf) and to contact the IRS’ Business and Specialty Tax Line at (800) 829-4933 with any questions.
Tax-Favored Accounts Fact Sheet
Vermont Health Connect has received many questions from employers about how existing tax-favored accounts interact with eligibility for premium tax credits and state premium reductions (financial help). This fact sheet is meant to answer some frequently asked questions about tax-favored accounts by providing you with Internal Revenue Service (IRS) guidance and information about how these accounts interact with individual eligibility for financial help.
Please note that these accounts and eligibility for premium tax credits are regulated by the IRS. The IRS is continuing to put out new guidance on these issues, and this information may change. You should consult a federal tax professional to determine how your specific tax liability is impacted. For additional questions, contact the IRS’ Business and Specialty Tax Line at (800) 829-4933.
Health Savings Accounts (HSAs)
What is an HSA?
A Health Savings Account (HSA) allows individuals and their qualified dependents to use pre-tax dollars to pay for their out-of-pocket medical costs. HSA funds cannot be used to pay premiums. HSAs can only be paired with high deductible health plans.
If an employer does not offer health insurance, can the employer contribute to an HSA if their employees buy a health plan through Vermont Health Connect?
Yes. Both Blue Cross Blue Shield of VT and MVP Health Care offer high deductible health plans through Vermont Health Connect that may be paired with HSAs. If an employee without health coverage through their job purchases one of the high deductible health plans available on Vermont Health Connect, the employee may apply the HSA contributions toward the out-of-pocket plan costs without affecting eligibility for financial help (tax credits and state premium reductions). See IRS Notice 2013-54 http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
Can HSA contributions be used to help pay premiums for employer-sponsored health plans (whether through Vermont Health Connect or otherwise)?
No. Employers cannot contribute to premiums through HSAs.
Is there a maximum that can be contributed to HSAs annually?
Yes. In 2014, the maximum annual contribution is $3,300 for an individual and $6,550 for a family.
Find the plan that’s right for you ‘ www.vermonthealthconnect.gov or (855) 899-9600
Flexible Spending Account (FSAs)
What is an FSA?
A Flexible Spending Account (FSA) is a tax-favored account that allows employees to be reimbursed for medical expenses. FSAs are only for employees whose employers choose to offer them; individuals may not contribute to an FSA on their own. FSAs are usually funded through voluntary salary reduction agreements with an employer. No employment or federal income taxes are deducted from the contribution.
If an employer does not offer health insurance and employees buy health plans through Vermont Health Connect, can the employer use an FSA to subsidize an employee’s medical costs?
No. FSAs can only be offered in conjunction with group health plans. See IRS Notice 2013-54 http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
Can employers who offer employer-sponsored plans still offer FSAs with their health plans purchased through Vermont Health Connect?
Yes. See IRS Notice 2013-54 http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
Health Reimbursement Account
What is an HRA?
A Health Reimbursement Account (HRA) allows an employer to contribute to employee’s health insurance premiums and medical costs. The contribution cannot be paid through a voluntary salary reduction agreement on the part of an employee. Employees are reimbursed tax free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans, including FSAs.
If an employer does not offer health insurance and employees buy health plans through Vermont Health Connect, can the employer use an HRA to subsidize premiums and cost-sharing?
No. The Affordable Care Act prohibits stand-alone HRAs and requires HRAs to be integrated with primary group health plan coverage. If an employer is not offering insurance, then it cannot offer an HRA. See IRS Notice 2013-54 http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
Can employers who offer employer-sponsored plans still offer HRAs with their health plans purchased through Vermont Health Connect?
Yes. See IRS Notice 2013-54 http://www.irs.gov/pub/irs-drop/n-13-54.pdf.
Find the plan that’s right for you ‘ www.vermonthealthconnect.gov or (855) 899-9600
Sources:
Department of Health and Human Services, 45 CFR Parts 147, 155, and 156, Patient Protection and Affordable Care Act; Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation http://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf
Health Affairs Blog, Implementing Health Reform: Health Reimbursement Arrangements And More, January 25th, 2013, http://healthaffairs.org/blog/2013/01/25/implementing-health-reform-heal...
Internal Revenue Service, 26 CFR 601.602: Tax forms and instructions., Administrative, Procedural, Miscellaneous, http://www.irs.gov/pub/irs-drop/rp-13-25.pdf
Internal Revenue Service, Notice 2013-54, Application of Market Reforms and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer Healthcare Arrangements, http://www.irs.gov/pub/irs-drop/n-13-54.pdf
Opening this October, Vermont Health Connect offers a new way for Vermonters to choose a health plan that fits their unique needs and budget. Through Vermont Health Connect, Vermonters can make side-by-side comparisons of their health coverage options. Both private and public plans will be available through Vermont Health Connect. Information is available online, by phone and in-person.