New IRS Guidelines on Long-Awaited Flexible Spending Account Carryovers

New IRS guidance issued toward the end of 2013 allows employer cafeteria plans to be amended. For the first time, carryover of up to $500 remaining at the end of one plan year, to pay for or reimburse qualified medical expenses incurred in the following plan year, will be permitted. Although welcome news for many employers and employees, the guidance raised new, unaddressed questions regarding participation and contributions to a Health Savings Account (HSA). Now, in an IRS memorandum released in late April, regulators have resolved many of those Health FSA and HSA uncertainties. 

HUB recently published a Client Bulletin, "Health FSA Carryovers and Eligibility for a Health Savings Account (HSA)," which explores this topic in detail. Meanwhile the following key points offer a helpful summary:

• General scope health FSAs reimburse a broad range of medical expenses. A person taking advantage of a general scope FSA is blocked from funding a health savings account.  By contrast, limited scope FSAs reimburse a narrow range of medical expenses and can be used simultaneously with a health savings account. 

• The new guidance sets forth rules that govern the timing and reimbursement mechanisms that attach to each account, so that a participant may properly switch from one FSA to the other, thereby compliantly participating in the HSA.

• Employers that have amended their Section 125 programs to add the $500 health FSA "carryover" opportunity should carefully examine implications affecting Health Savings Account usage. Compliance inattention could result in participants with disallowed HSA usage.

On a related note, the IRS has released 2015 indexed amounts, adjusted for inflation, for Health Savings Accounts.  The following chart reflects the contribution limit, deductibles and out of pocket maximums for high-deductible health plans (HDHPs). Changes were minor, but plan sponsors will need these figures when preparing benefit guides and other employee communication materials as well as for determining 2015 plan design.

Talk to your HUB Employee Benefits Advisor, and sign-up to receive HUB's Health Care Reform E-newsletter, to ensure you and your business are armed with the up-to-the-minute information.